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spk01: Greetings and welcome to the fourth quarter 2020 conference call webcast for Schwoz, formerly operating as Medicine Man Technologies, Inc. We are being hosted by Justin Dai, Chairman and Chief Executive Officer, and Nancy Huber, Chief Financial Officer. Following the presentation, management will take questions submitted via the web link found on Schwoz's Investor Relations website and in the earnings press release. I would also like to remind you that management's prepared remarks and answers to your submitted questions may contain forward-looking statements, which are subject to risks and uncertainties. The words anticipate, could, enable, estimate, intend, accept, believe, potential, will, should, project, position, objective, determined, vision, and similar expressions, as they are related to schwas, are, as such, a forward-looking statement. Investors are cautioned that all forward-looking statements involved risk and uncertainties that may cause actual results to differ from those anticipated by SWAS at this time. Additional information on factors that could cause results to differ is available in the SWAS Earnings Release and Annual Report on the Form 10-K for the year ended December 31, 2020. In addition, other remarks are more fully described in SWAS' public filing with the U.S. Securities and Exchange Commission, which can be reviewed at www. or on the company's investor relations website. During management's prepared remarks and in answering investor questions, there will also be discussion of consensual acquisitions. These acquisitions will be conditioned upon the satisfaction or mutual waiver of certain closing conditions including, but not limited to, regulatory approval relating to all applicable filings and expiration or early termination of any applicable waiting periods, regulatory approval for the Marijuana Enforcement Division and applicable Loading Licensing Authority approval, receipt of all material, necessary third-party consents and approvals, each party's compliance in all material with the respective obligations under the term sheet, a tax structure that is satisfactory to both the company and the targets, the execution of leases and employment agreements that are mutually acceptable to each party, and the execution of definitive agreements between the respective parties. I would now like to turn the call over to Justin Dye.
spk03: Hello, and thank you for joining us this afternoon. I will provide a business update, some brief commentary on the industry, and wrap up my remarks by welcoming our two newest board members to the company. Afterwards, Nancy will review our annual financial results in detail before I conclude our presentation with some final thoughts. We would then be happy to take your questions. Earlier this month, we completed our acquisition of Starbucks, one of the most recognized successful retail cannabis operators in the United States based on revenue per location and profit. This transaction positioned Schwoz as the leading vertically integrated cannabis company in Colorado. As you are likely already aware, the asset purchase of Starbucks' 13 dispensaries in Colorado was realized through three separate transactions that began last December. Total consideration for the final transaction was $118 million. And this consisted of $44.25 million in cash, $44.25 million in seller notes, and $29.5 million in preferred stock. Please see the 8Ks for these transactions for all of the specifics. The Starbucks acquisition and the preceding Mace Organics Purple Beads acquisition completed last April have substantially increased Schwarz's size, and have made us among the first publicly traded companies with full seed to sale operations in Colorado, consisting of 17 dispensaries, one cultivation site, and one manufacturing campus. We have updated our estimate of the performer revenue for our 2020 transactions. Our 2020 revenue would have been approximately $100 million inclusive of the $75 million contribution from Starbucks. And while these dispensaries are already solid performers, we are already driving synergies that will improve customer experience and financial performance. By challenging capital markets in a global pandemic, the company successfully raised $72.76 million consisting of a private placement offering totaling $57.76 million and debt financing totaling $15 million. The capital was raised from December 2020 to March 2021. In the private placement, we issued and sold an aggregate of approximately 57,760 shares of Series A cumulative convertible preferred stock at a price of $1,000 per share under a securities purchase agreement with DiCapital and CRW managed funds, as well as subscription agreements with unaffiliated investors. $10 million of the $15 million in debt financing was funded immediately while the remaining $5 million will be funded upon satisfaction of customary closing conditions. With the Starbuds transaction itself now behind us, we have turned our attention to integrating Starbuds into our platform. Similar to what we have accomplished with Mesa Organics and Purple Bees, we are implementing our operating system to drive operational and financial improvements and expect to complete the process by mid-June. Our best-in-class playbook leverages our in-house M&A integration and synergy office and utilizes our advanced data analytics to realize synergies and operating efficiencies. For example, we launched a sales training program for bud tenders to ensure that we are providing customers with the very best in service while demonstrating their deep product knowledge and cannabis expertise. This is enabling us to build new relationships as well as strengthen existing ones as part of our efforts to be seen as the trusted resource for great products, and facilitating great experiences. We're also working on standardizing and improving the merchandising mix and store layout so that the Starbucks ambiance and retail environment is consistent across the entire footprint. We've also rebranded our Mesa organic retail locations under the Starbucks banner in March. Technology plays an important role in implementing a repeatable measurable dispensary playbook We are therefore installing the same point of sale and ERP system at all Starbucks dispensaries that has already been implemented at Mesa Organics and Purple Bees. The point of sale ERP integrates compliance, operations, finance, supply chain, and provides valuable data and analysis to drive insights and decision making. This system serves as one of the primary foundations for our platform. that will help guide us as we provide the best experience for our customers. We are also adding interactive digital consumer engagement tools for both educational and marketing purposes to each location. We're confident that these measures will enable us to realize better margins in conjunction with revenue growth. Turning to the future, we are evaluating additional opportunities across the cannabis industry in the areas of cultivation, manufacturing, and dispensaries. Our criteria for potential acquisitions includes the following. Revenue growth that exceeds Colorado's averages, EBITDA profitability with synergy opportunities, attractive acquisition prices that are accretive to our shareholders, and provides additional products and or attractive locations. We will announce our intentions regarding specific transactions once we've reached definitive agreements with our prospective partners. Let me also reiterate that we believe our home state of Colorado represents an attractive geography to build out our platform since it provides us with the opportunity to acquire companies that are sophisticated and profitable and have already weathered the early boom and bust cycle of the industry. Our objective is to more than double our pro forma revenue in the next 12 months. Two final thoughts on the macro environment before I welcome our two new board members to the company and then turn the call over to Nancy. First, while the pandemic may be winding down with new cases falling and vaccinations rolling out to more and more segments of the U.S. population, we are certainly not out of the woods yet. and are therefore still cautious as to what the next six to nine months might look like for our industry. However, we view the recent stimulus checks as representing an opportunity to bring in more first timers into our industry, and we hope to capitalize on that. Second, we're encouraged that cannabis has become less of a partisan issue than ever before, and therefore could be a substantive area of agreement across the political aisle. In fact, just last week, Senators Jeff Merkley, Democrat out of Oregon, and Steve Daines, a Republican out of Montana, along with 27 other members of the upper chamber, reintroduced the Secure and Fair Enforcement Banking Act in the U.S. Senate, which is known as SAFE. Recall that last Congress, members of the House of Representatives voted 321 to 103 to in favor of the bill on September 25, 2019. On two additional occasions, House members re-approved the bill's provisions as part of broader economic stimulus packages. However, under the control of then-Majority Leader Mitch McConnell, members of the Senate failed to take up the language. Today, we are optimistic that this legislation will get the hearing it deserves with a new Senate in place, and perhaps In the not too distant future, a rapidly growing industry can soon begin to operate similarly to other industries with respect to banking, processing credit cards, and even taking standard business deductions on federal taxes. The Biden administration has expressed support for descheduling and bank reform, so we remain hopeful. And once federal policies change on this front, we will see an immediate yield of tremendous job growth and tax revenue across the country and likely further medical or recreational legalization in places once thought to be unchangeable. Within Colorado itself, more and more municipalities and communities are also now allowing retail cannabis businesses within their borders. And this includes three areas of Metro Denver and tourist destinations such as Winter Park and Buena Vista. We view this more favorable environment as providing greater opportunities for us to grow, and it deepens my excitement as to what the future holds. In 2020, cannabis sales in Colorado rose to $2.2 billion, representing over 25% growth compared to 2019. This was nearly double the rate of increase from 2018 to 2019. January 2021 sales, which is the latest monthly data point available, were $187.6 million, which was up 35% from January last year, demonstrating the health of our industry in this unprecedented environment. Finally, I'd like to welcome Jeff Kozad and Salim Wadan, who were both recently appointed to our board of directors. Jeff is the co-founder of CRW Can Holdings LLC, a special purpose vehicle created to support Schwoz's vision becoming the leading vertically integrated player in Colorado cannabis market. He is also the managing partner of his family office, where he has completed more than 20 investments across a number of industries over the past 13 years. I believe his financial expertise, as well as significant and relevant board experience, will be invaluable to us. Salim has over 20 years of entrepreneurial experience owning and operating retail businesses. He was instrumental in the early growth of Star Buds franchise and most recently was a partner and operator of Star Buds in Adams, Louisville, and Westminster. I believe his recent cannabis experience will represent the voice of the customer to our board. And now, let me turn the call over to our CFO, Nancy Huber. Nancy?
spk00: Thank you, Justin. I would now like to review our financial results for the fiscal year ended December 31st, 2020 compared to the fiscal year ended December 31st, 2019. Revenue totaled $24 million and consisted of product sales of $22.5 million and consulting and licensing fees of $1.4 million and other operating revenues of $33,000. This represented a nearly 94% increase year over year compared to the revenue of $12.4 million in 2019. We benefited primarily from the Mesa organics acquisition earlier in the year that contributed to a nearly tripling of product sales while consulting and licensing fees declined due to the refocus of our professional services and cultivation services expertise to internal projects. In 2019, we benefited from $1.8 million in revenue awarded in litigation that we consider non-recurring. Cost of services totaled $17.2 million in 2020 compared to $7.6 million in 2019. This increase was due to an increased sales of our product. Operating expenses in 2020 totaled $29.5 million. compared to $21.9 million in the prior year. This increase was due to higher selling, general, and administrative expenses, professional service fees, salaries, benefits, and related employment costs, and non-cash stock-based compensation. Other income net totaled $2.6 million compared to other expense net of $1.5 million. This increase was due to a gain on forfeiture of contingent consideration and unrealized gain on the change in fair value of certain derivative liabilities offset in part by unrealized loss on investment and increased interest expense. As a result, we generated a net loss for the year ended December 31st, 2020 of $19.4 million or approximately 47 cents per share compared to a net loss of $17 million or 50 cents per share during the year ended December 31st, 2019. As of December 31st, 2020, we had cash and cash equivalents of $1.2 million. Net cash used in operating activities increased $2.2 million last year to $9.8 million. Net cash used in investing activities decreased $32.1 million which was used for the Mesa, PurpleVees, and StarBuds acquisitions completed last year. And net cash provided by financing activities increased $11.7 million, which included $29.4 million that was used to fund the StarBuds acquisition. In 2021, we are already generating positive cash flow from ongoing operations and therefore do not believe at the current time that we will need to raise additional capital for ongoing operations. However, similar to what we have done in the recent past, we will likely need to raise additional capital to fund our growth acquisition strategy. Turning now to our 2021 outlook, we are projecting total annual revenue of approximately $105 million to $125 million and adjusted EBITDA, which is a non-GAAP measure, of approximately $28 to $36 million. These ranges exclude any unannounced acquisitions that we may complete this year. It is based on the acquisition timing for the final seven Starbuds locations, with two acquired in early February and five that closed in early March. We are cautiously optimistic about 2021. Based on results to date, integration of the Starbuds acquisitions is going well. As with Mesa Organics and Purple Bees, we believe that the team will create greater than expected synergies. We also feel there are a number of external challenges that may influence our results, such as COVID-19, government stimulus, and legislation. Finally, as Justin indicated, we are determined to double our pro forma revenue over the next 12 months through accretive acquisitions and internal growth. Now I'd like to hand the call back over to Justin for his closing comments.
spk03: Thanks, Nancy. 2020 was a foundational year for Schwoz as we became a plant touching operation. The company has tremendous momentum exiting 2020 as we are generating free cashflow in 2021. We finalized a successful capital fundraise, completed two cornerstone acquisitions, built our operating system and developed an extensive acquisition and organic growth pipeline. This of course was accomplished amid a global pandemic It certainly made everything that we were able to execute more challenging than we could have ever expected. We thank our employees for their hard work, passion, and perseverance on behalf of our shareholders, as well as the communities and customers that we serve. Our recent acquisitions of Mace Organics, Purple Bees, and now Starbuds are already benefiting from our operating system. we are confident that we will continue to drive operational and financial synergies. Looking now ahead to the future, we think 2021 is going to be a great year as we move forward in realizing our vision of becoming a leading vertically integrated platform and ultimately the most admired cannabis company in the world. We've already assembled a great team of experienced, profitable cannabis operators that we intend to expand and as we bring other cultivators and manufacturers and retailers under the auspices of our publicly traded company. Our growth pipeline is robust and continues to develop. With our performance in a more cannabis-friendly regulatory environment, we expect capital raising to become easier and capital costs to continue to decline, which bodes well for our future outlook. Nancy's already provided our outlook for 2021. with respect to our current operations, but I think it is important to reiterate that our goal is to double pro forma revenue over the next 12 months through accretive acquisitions and internal growth. I am energized and confident that we will be able to do so and look forward to sharing additional details on our progress throughout the year as we pursue these opportunities. Thank you all for your continued support, encouragement, and interest in Schwoz. We would now be happy to take your questions. To ask a question, please click on the link on the investor relations portion of our website and submit.
spk02: Wonderful. So I'm looking at the questions now. And the first question that's come in is, do you view your recent financing as relatively expensive but necessary? Or is it consistent with what you are seeing across other operators within the industry or within the state of Colorado?
spk03: Yeah, thank you, Ray. That's a great question. You know, we really see this last fundraising exercise as very, very positive for the company. We attracted some incredibly high-quality investors that bring talent and expertise with them and that will be helping Schwoz. continue to effectuate our business plan. They all have a long-term focus and long-term growth and really are bought in to the system that we're building and what our long-term value can be. I also would point out that we were one of the few companies that were successful in raising capital across the country, in particular in Colorado. So we're one of the few, and I really view this growth capital enabling us to continue to execute our organic growth plan. which will include new stores, new dispensaries, new capabilities. And on the grand scheme of things, we do believe our cost of capital, as we grow and continue to execute and outperform, our cost of capital will continue to go down.
spk02: Another question on capital. Should we expect a capital raise ahead of each transaction going forward? And given the fragmentation of the industry, Is it reasonable to assume that each standalone acquisition would be smaller than StarBuds?
spk03: Let me take that one. StarBuds was a large operator. We paid $118 million for the business in the form of equity cash and a seller note that they provided to us. So it was a large acquisition. I would say most acquisitions that we're looking at are smaller, some of which are larger. And it really depends upon the acquisition and how much stock we negotiate versus cash. But some acquisitions, we will not raise more capital. There will be others that will anticipate that we will need to raise capital and cash for the cash component. But I think it's also important to say we do have cash on the balance sheet. We're in a great place. We're going to continue to be very thoughtful about our liquidity. and we're going to be looking at very good acquisitions that fit our criteria, that add capabilities, that add innovation, that we can create shareholder value, and that will be accretive to us.
spk02: Okay. How many targets are currently in your pipeline, and how are you sourcing potential transactions?
spk03: Well, we're unable to talk about the specific number, but as I said, we feel very upbeat and positive about our ability to double pro forma revenue this year through acquisitions and with our organic growth. A lot of the companies that we're meeting, we do our homework. We certainly look at the market. We look at areas of the state that we don't cover from a retail perspective. And we only cover a very small part of the state today. So we see enormous opportunities to continue to grow at retail as well as products and on the manufacturing and cultivation side.
spk02: I guess a related question I see here is, are you leaning in any one direction between cultivation, manufacturing, or retail? But it seems like you're indifferent.
spk03: Well, we clearly are looking, in terms of priority, we're certainly looking at retail and dispensary locations as we continue to meet customers' needs across the state. We are also looking at really good brands and product companies. to continue to bring that into our stores and produce that. We're also developing some of our own brands. And cultivation is important. Our target is to have a portion of our cultivation in-house, and a portion of it we will contract out with very good growers so we de-risk our supply chain. And we also don't have to dedicate all that capital to the cultivation and indoor greenhouse and outdoor growing capabilities. But we want to be balanced and contract some and be able to grow our own as well. So that would presume that we are looking at cultivation as well from an acquisition perspective.
spk02: Have asset prices risen since the onset of COVID?
spk03: You know, it's interesting. When you look at when you look at different parts of the state and you look at different geographies, some geographies perhaps are today medical and are looking to move to adult or rec use when the values have remained relatively constant. Where we're seeing some inflation is when a jurisdiction switches from medical to rec with those licenses and going up a little bit. But in general, I would say it's been relatively constant in terms of what individuals are looking for for compensation from a seller perspective. But it varies. It varies depending on size and scale and location.
spk02: One other question on COVID came in. Has COVID in any way been a negative for you or the industry? It seems like it's brought a lot of customers to experiment with cannabis and has greased the wheels towards legalization given the potential tax revenue it could generate. Is there anything I'm missing here?
spk03: In general, from an operating perspective, it has brought a number of new consumers to the category, which is great for the cannabis business. Those customers in the category today, we're seeing larger baskets. and buying more units as well. So we're getting a deeper relationship with our existing customers. So we're growing both ways, which is incredibly exciting. And I would say, you know, COVID probably had the biggest issue with the business was raising capital. You know, you had capital markets frozen for a period of time with the Canadian cannabis reset for public companies. And then a number of high net worth individual family offices that have a number of investments in companies and real estate. We're really standing on the sidelines trying to figure out what was going to happen with the economy with COVID and which industries were going to be impacted. We've seen that move dramatically. So outreach and capital seems to be freeing up quite a bit with the election in November and certainly the the Senate flipping Democratic. So we think that all bodes well for the industry, but certainly COVID created a lot of issues from a fundraising perspective. Okay.
spk02: What could you tell us about the current unit economics for Starbucks in terms of average annualized sales per location, the store level margins, and the average consumer spend?
spk00: Hey Rafe, I'll take that one. So we're working right now on normalizing historical information for those stores. Remember, we just took over the last five of them, not less than a month ago. So we will, over the next couple months, probably throughout the year, start providing those comparisons where we'll do year-over-year information that we believe will be helpful to our investors to understand but we're not quite in the place to talk about that today, but look for that to come in our future calls.
spk02: Related question, how much in incremental sales and margins do you think you could generate by executing your playbook, and how much does it cost to actually execute your playbook?
spk00: Again, we don't have a lot of history there, so as we get a little further down the road with Starbugs, we'll have better data. We have seen improvement in product margins at Mesa Organics, along with basket size and customer visits, but we're not providing the specifics yet. Again, we'll start providing those in the future, and you'll be able to see those measurements.
spk02: Is the integration of Mesa Organics PurpleVis complete at this time? Is the normal timeframe to integrate an acquisition less than four months?
spk03: Yeah, I'll take that one. You know, we're making really great progress. The team has executed against our integration plan very, very well. We have a process and an integration system that's worked well all the way from onboarding new employees in our payroll systems all the way to converting point-of-sale systems. So, you know, we've just re-bannered the Mesa Organic Stores to Starbuds. We're working on integrating Starbucks as we speak, and we'll do this very quickly. So the answer is yes, we will be able to integrate businesses, I would say, much faster than four months. The team's done this. We've practiced. We've had very good expertise here in-house. It's done this very often. So we've got very good capabilities there. And, you know, on the Synergy side, too, I would tell you we feel very, very confident that we will be able to outperform our synergies on these businesses as well as early tells would be Starbuds, Purple Bees, and then also Mesa Organics. So we're starting to see some of that even with Starbuds.
spk02: Do you have a CapEx capital expenditure budget for 2021 that you could share?
spk00: Sure, we do. We expect the current businesses, so that includes the Starbuds and and MMT groups to spend about $1.8 million this year in capital budget. That includes updating their retail spaces, implementing our digital marketing plan. We're investing in our MIP equipment and continuing to expand our ERP. So all those things are covered in that number.
spk02: Okay. Can you provide any examples of how you intend to drive innovation with respect to product development and retail trends?
spk03: Yeah, I'd be happy to answer that. You know, we have a number of innovation projects that the team is working on, particularly out of merchandising and our marketing group. So, for example, we just introduced a new vape CPG product at Purple Bees. We're looking at a number of other new products that we can make available in our stores as well as to our wholesale customers. And then one of the things that customers can see today is we've rolled out our digital target marketing in stores, which is interactive and does a really great job of storytelling around products and how they were made, how they were grown, and educating consumers. And we are excited about partnering. with our CPG partners on some of those marketing capabilities, and we think we'll see better sales, and we think we'll see better margins as well.
spk02: Okay. Is your goal, based on any hard data related to the opportunities you're currently evaluating in the marketplace, or rather an aspiration? And I'm talking about not your specific guidance, excluding acquisitions in terms of your guidance to double revenue and pro forma.
spk00: Yeah, we're looking at probably double that number of opportunities. So we think the guidance that we gave to double our revenue is very likely. And we're looking at real opportunities here. I don't have any number of those like we've talked about, but we've identified very specific companies. We have real estate locations that we've identified that fit our targets. And we're evaluating the price and the return on those. And as Justin mentioned, as soon as we have definitive agreements, we'll come out and announce those.
spk02: Question on what would it take for you to expand beyond Colorado? What's the impetus to do that? What would drive that?
spk03: Well, we have a relatively small coverage base in Colorado today. If you look at, we have enormous growth opportunities today. within the state. So we're excited about continuing to grow organically with new sites, new locations, new products, new services, and new capabilities in the state itself. Having said that, our strategy, as we've said, is to build a really great business here serving customers with size and scale, and we believe that this is applicable to other states, and as we approach other states, we certainly would look at taking this system and applying it there, so where we can build size, scale, create value, and to obviously create shareholder value. So we'll remain open to looking at that, but right now we're certainly focused on Colorado.
spk02: Related question is, what is your target for share of the Colorado market, and how do you intend to get there?
spk03: Yeah, I probably won't use numbers, but once again, I would say we have orders of magnitude opportunity to grow our share. And that's going to be driven by customers and our ability to service them in unique and differentiated ways, which we're obsessed with doing. So I think the customer will tell us how much share we deserve, and that's the way it should be.
spk02: Question on e-commerce and delivery. What's your e-commerce and delivery strategy?
spk03: Yeah, we will share more about that as we unwrap that, but there's a lot of activity inside our company working on our omni-channel capabilities and plans. So we'll look forward to launching that in the coming quarters. And we'll discuss that in more detail.
spk02: All right, well, that's what we got. So I appreciate everyone for submitting questions. Any final remarks from Justin or Nancy?
spk03: No, we'd like to thank all of our shareholders for supporting us. We'd like to thank our employees who have been just incredible going through this pandemic and servicing our customers and taking care of one another. I want to thank our management team. that's done a terrific job of creating a really great company and continue to work incredibly hard. And we're really excited about cannabis and the opportunity to improve people's lives and their condition. So we're excited about that and want to thank all of our shareholders and those that are interested, friends, partners in supporting our efforts. So thank you. And we'll look forward to continuing to execute and execute at a high level and Look forward to our next conference call. Thank you. Thank you all. Have a good evening.
spk01: And with that, this concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
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