Lftd Partners Inc

Welcome to Lifted Partners Third Quarter 2024 Earnings Conference Call. 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 box 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 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 third quarter of 2024. Our earnings press release and financial statements for the third quarter of 2024 have been filed with the SEC, and links to both can be found on our website, www.lftdpartners.com. On today's call, we shall 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. The 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 filed with the SEC. We undertake no obligation to update these forward-looking statements. During Q3, we welcome Sheryl Howard to our board of directors. Sheryl is an accomplished real estate professional who has worked closely for years with our board member, Kevin Rosio. We look forward to working with Sheryl to grow our company. We will be holding a shareholders meeting on December 6th in Orlando to vote on the election of our board of directors and to vote on the engagement of our outside auditing firm, First Seen Associates. By now, all of our shareholders should have received by mail our proxy materials. Any shareholders who have not received our proxy materials because their address is on file with our transfer agent or out of date should promptly contact our transfer agent which is Colonial Stock Transfer in Salt Lake City. I encourage all shareholders to participate in the votes. Now I'd like to address a few topics that have impacted our business over the past few months. First of all, consumers nationally have been reducing their spending on discretionary items, including hemp-derived cannabinoid products. Nick is going to comment on some important initiatives that he and his team at Lifted Made have been working on during this challenging sales environment. To grow herbs direct to consumer sales and direct to retailer sales, to expand sales of our rebel energy gummies and meal-less wellness gummies, and to reduce our operating expenses. Secondly, opponents led by the big marijuana companies are continuing to lobby at both the federal and state levels for prohibitions and or severe restrictions against hemp-derived cannabinoid products. Our company and other members of the hemp industry have been spending a great deal of time, energy, and money attempting to persuade legislators to support regulatory guardrails that would prohibit sales of intoxicating hemp-derived cannabinoid products to miners, that would prohibit packaging intended to appeal to miners, and that would require rigorous lab testing of all products. Third, we are in serious discussions with certain potential acquisition candidates that sell both hemp-derived and non-hemp-derived products. One of these potential acquisition candidates is also involved in the US marijuana industry and is expanding into the European Union. We are actively exploring potential capital raises to fund such potential acquisitions, including using debt or equity or a combination of the two. We are subject to non-disclosure agreements, so I'm not in a position to provide much more detail at this point in time. While these potential acquisitions are extremely high priority for us, I must caution that no assurance can be given that these discussions will be successfully concluded. At this point in time, I'll turn the presentation over to Nick Warner, our vice vice chairman and chief operations officer and the founder and CEO of our holy on subsidiary lifted.

Thank you, Jerry. And good morning, everyone. I'd like to provide information regarding some exciting developments and updates regarding lifted. During Q3, we launched the newest iteration of our best-selling flagship brand herb featuring a fly high theme. We're using two major initiatives to intensively push these relaunched products in a way that is intended to significantly increase our direct-to-retailer and direct-to-consumer online sales. To increase our direct-to-retailer sales, we've built a 15-person team of boots on the ground. We have been meeting face-to-face with hundreds of vape shops in an intensive city-by-city push. So far, our team has spent time in Houston, Dallas, Austin, Atlanta, and will be continuing on to other metro areas. To increase our direct consumer online sales, we've engaged some of the country's best online marketing firms to accelerate ERB's SEO and other online marketing efforts. We're hopeful that these two major marketing initiatives will significantly expand our sales volumes and profit margins and make us less reliant on current distributors. We're also spending time, energy, and money on marketing two of our new hemp-free brands, Milos and Rebel Energy Gummy. These two non-hemp brands are very important for Lifted because many large grocery and convenience store chains are not equipped or interested in handling products used that are illegal in some of the states. They want products that can be brought into their distribution centers and shipped all over the country without worrying about violating state and local laws. We expect our marketing efforts on Milos and Rubble Energy gummies We'll gain traction during the holiday season from Thanksgiving through the new year, which is historically a very busy season for our products. We've also been focused on reducing expenses. We've reduced our payroll expenses 8% from Q1 24 to Q2 24, and then reduced our payroll expense another 8% from Q2 to Q3 2024. Professional fee expenses also came down 40% from Q1 to Q2 24, and then another 33%. from Q2 to Q3. And we have then proactively reduced our CapEx spending from $747,000 in the prior year to $310,000 year-to-date, and are containing our CapEx spending going forward. As a result of these initiatives, our cash from operating activities only fell by $68,000 year-to-date, and nearly all of our declining cash was due to investing and financing activities. At this point, I will turn the presentation over to Jake Jacobs, our President and Chief Financial Officer.

Thank you, Nick. My comments will be based on quarter-over-quarter comparisons of the third quarter of 2024 to the third quarter of 2023, unless I state otherwise. Our consolidated net sales were $8.6 million, down 34% due to a number of headwinds. prohibition of or tighter regulation of intoxicating hemp-derived products has been adopted or proposed in many states that are significant markets for lifted, such as in California. Consumers are economically stressed and have been selectively reducing their discretionary spending. There is also greater competition in the marketplace for branded hemp-derived and psychoactive products that are similar to those that Lifted sells. More distributors are creating their own brands and selling their own branded products at low prices. There's increased competition for products containing more milligrams of cannabinoids or active ingredients per unit at a lower price point. And other competing brands are paying distributors and wholesalers more than what Lifted is willing to pay for valuable shelf space. Our total cost of goods sold was $4.9 million, down 43%. Lifted's industry and customer preferences are constantly and quickly evolving. Consequently, Lifted finds it extremely difficult to predict future sales of its products and to anticipate raw goods needs for future productions. This exposes lifted to the risk that it will need to write off obsolete raw goods, causing an increase in cost of goods sold. Written off inventory decreased to $330,000 compared to $597,000. Excluding the effect of written off inventory, gross margin as a percentage of net sales was 47% compared to 38%. Operating expenses were $3.9 million, up 4%. The primary driver for this increase in operating expenses was $864,000 in FedDOT expense. The delay in Lifted's receipt of payments from certain customers, primarily distributors, have increasingly become an issue for Lifted. Certain customers have become slower to pay Lifted for purchased products, and these slow-paying customers disregard payment terms. Management speculates that some slow-paying customers may be slow-paying lifted because of their own sales collection issues, which may in part be caused by the regulatory uncertainty over our industry. The company has an accounting protocol which effectively causes the company to recognize an allowance for adoptable accounts for all invoices older than 90 days. Consequently, the delay in lifted receipts of payments from certain customers has a direct impact on the company's net receivables, net income, and earnings per share. Operating loss was $141,000 compared to operating income of $659,000. Net other expenses were $48,000 compared to $80,000. Lifted Partners net loss was $194,000 or one cent per share compared to income of $617,000 or four cents per share. Basic and diluted weighted average shares outstanding for the quarter were 14.8 million shares. During the nine months ended September 30th, 2024, Nut cash used in operating activities was $67,000. At September 30, 2024, we had total outstanding vested and exercisable options and warrants of $3.5 million with a weighted average exercise price of $3.97, which, if all were exercised, would generate proceeds of $13.7 million, ignoring any cashless exercise features. In regards to our September 30th, 2024 balance sheet compared to our December 31st, 2023 balance sheet, cash on hand, which includes $1 million of restricted cash, decreased 22% to $4.1 million, down from $5.3 million. Inventory decreased 4% to $9.7 million, down from $10.1 million. Firm assets decreased 19% to $17.4 million, down from $21.6 million. Current ratio increased to 2.64 from 2.49. Working capital decreased 16% to $10.8 million, down from $12.9 million. And notes payable to surety banks decreased 10% to $3.48 million, down from $3.85 million. We will now answer questions that have been submitted to us. If you would like to ask a question and are connected via teleconference, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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 box on the left side of your screen, type in your question, and hit submit. Okay, so the first question we have is, will the Board of Directors quarterly fees be reduced commensurate with the dramatic decline in revenue over the last four years? Jerry, you want to take this one?

Yeah, I mean, we've got a board of directors that is, in our opinion, hanging in in a very challenging environment in our industry with a lot of regulatory risk, a lot of issues that companies like ours are having to negotiate. And they're doing it in the context also of a very litigious industry. And doing it in a context where it's impossible to get directors and officers insurance. In our opinion, at this point in time, $4,000 per quarter for independent directors functioning in this environment is very reasonable. And when you look at our filings, it's not like we've been issuing warrants or options to the directors on top of these very modest fees. I realize reasonable people may differ on this point, but in management's opinion, these quarterly fees being paid to the directors are very, very reasonable in this environment.

All right. The second question we have is revenues have now decreased over 50% from their high two and a half years ago. What is the plan to turn around the company? Nick, do you mind, do you want to take this one?

Yeah, I mean, we've, can you guys hear me? Yeah.

You know, two and a half years ago, we didn't face the regulatory uncertainty that we've been facing in the last two years. I'd like to think we've done a great job in certain states. proposing proper regulations to not only stabilize the industry, but to create a fair playing field, which I believe works to our advantage. Uh, we've always focused on doing things the right way, doing things the compliant way, um, rather than the easy path. So for us, it's, it has been a fight, um, where we've been extremely engaged in both the federal and on a state by state basis and, uh, protecting, uh, this industry. while simultaneously there's been mass amounts of saturation, economic impact for your average consumer, and that's the reason why we have taken a new approach to really focusing on direct to retail and direct to consumer, as well as spending a lot of time, energy, and money in expanding outside of hemp to where we can leverage our current infrastructure to do so. These things take time, but we're working harder than we ever have, and I realize that the results aren't as great as I believe everybody would like to see, but we are optimistic based on the work that we have put in and understand that we need to change to get a different outcome, and we've been making those changes over the last year to position ourselves to continue to tackle this industry but to also expand outside of it.

All right.

Thank you. The next question is, what about reducing the compensation to the three highest compensated officers? Gary?

Yeah. I mean, if you look at our industry, our company has performed at the very high end of the performance of companies in the cannabis industry. I'd without any exaggeration, 95% of the companies in the cannabis industry, the publicly traded companies, have been for years hemorrhaging millions, if not hundreds of millions of dollars. I mean, billions of dollars of investor money have been lost by these companies. And those companies typically pay significantly higher executive compensation than our business. I mean, the CEOs of Some of our competitors have paid millions of dollars to their CEOs who have been leading companies that have been, like I said, losing insane amounts of money. A $250,000 salary for our CEO, my salary, is drastically less than what these other money-losing competitors are doing. And same thing in the case of Nick and Jake. I encourage any shareholder who is concerned about executive compensation to do some sort of comparison on your own between what we pay, which is extremely modest relative to the compensation being paid by our competitors and our results have been significantly better than 95% of the industry. Okay.

What percentage of the current board, besides Nick and his father, have any experience in the hemp or marijuana industry?

Yeah, I mean, at this point, our entire board is just up to our necks in terms of the complexities and interaction with the cannabis industry, both marijuana and hemp. We have to be in order to be constantly reacting to all the moving pieces in this industry, both regulatory, competitor movements, as well as making sure that our company is continuing to operate in a completely legal fashion. There is a requirement for independent board members uh, that they have to be independent of the industry. So by definition, our independent board members are, have principal businesses that are outside the cannabis industry. But at this point, because of everything we've been going through since we acquired lifted all of our board members, Shereel has just joined within the last couple of months, but other than Shereel, the remainder of our board members have been, uh, educated, uh, by participating in the industry dramatically in terms of what's going on in both marijuana and hemp.

Okay, the next question we have is from Pablo Zuanek from Zuanek & Associates. Is there interest in increasing the equity stake 5% in edibles hemp beverages? Can they explain, despite the market pressures, your sales of edibles continue to increase? Can you give so we connect for this? While vape continues to decline, can you explain the resilience of edibles? With Republicans controlling the Senate, how are you thinking the 2025 Farm Bill and the impact on the hemp industry?

Well, I mean, Pablo has raised a number of different points. I'll try to walk through some of them. You know, in terms of a Bliss, which is a company in Oregon that we own 4.9% of that has CBD beverage products and is now launching into THC beverages, you know, Those folks have navigated, just like we have, an extremely difficult set of industry challenges, competitors, as well as challenges on the retailing side of dealing with retailers that have a great deal of anxiety branching into THC products, which are controversial We have a lot of confidence in Jim Bendis, who's the founder and CEO of Bend Distillery and the principal owner of Ablis. We have had conversations from time to time with Jim about the potential of Ablis and or Bend Distillery merging with us. To this point, there isn't a mutual consensus. in terms of how a transaction, a merger might occur and under what valuation and so forth. But that is a potential down the road, not speaking for Jim, but we think that that's a potential. And we're, you know, I'm on the board of Bend Distillery and Ablis. We're closely monitoring what they're doing. We like what they're doing. We're optimistic about ABLIS's growth and the people that they have, but where that eventually ends up, if we were to have a larger stake, that remains to be seen. It has been discussed from time to time, but no decisions or mutual agreement to do anything further are in place at this point in time. In terms of the question that Pablo raised in terms of sales of edibles as compared to sales of vapes, I mean, I believe that there are reasons why consumers have migrated towards edibles and away from vapes. Some of it I think relates to the ease of using, gummies edibles also it eliminates safety issues that some people have experienced not with our vapes but with some other companies vapes so there are safety concerns but you know both channels edibles gummies and vapes are still very vibrant sales opportunities that lifted has Both of them are significant. Nick, do you care to make any additional comments on this?

I do. You know, Minnesota is a great example to look at where that was a market that we've captured a lot of market share over the years, but with a shift in regulations that basically banned vapes but opened up limited milligram caps for beverages and edibles. Really over this year, we've continued to expand in capturing more market share for the edible category in Minnesota, which has been rather drastic. And we're seeing that in other states as well, right? Iowa being another state. So there are states that just due to newly implemented regulations, you know, either limit or ban vapes entirely while edibles are you know, are still a category that's open. We are continuing to explore a lot of tech in beverage. It's something that we're actively pursuing and participating in, but we're, you know, we believe edibles are here to stay even in states where, you know, there's extremely tight regulations.

Okay, and then Pablo raised the last question in terms of as with Republicans controlling the Senate, does that change the calculus of the thinking about the farm bill and extension of the farm bill? Yeah. Nick, I guess you'd probably be the best person to answer that.

We've worked close with a lot of Republican States over the last few years. Um, so our relationships have, have expanded. Um, but you know, this has been a bipartisan issue, um, in our perspective of, you know, really working with both sides. Um, so, you know, for us, it's important to protect the industry through sensible regulations. Um, you know, we're excited to work with the new administrations and, and continue to push forward and, legitimizing the hemp industry and protecting consumers simultaneously.

Okay.

Looks like there aren't any other questions. This concludes today's, right? Let me just make sure. No, there are none. Okay. This concludes today's conference and you may disconnect at this time. Thank you for your participation.