Medicine Man Tech Inc

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.

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?

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.