Medicine Man Tech Inc

Greetings and welcome to the first quarter 2021 conference call and webcast for Schwoz. We are being hosted by Justin Dye, 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, determine, vision, and similar expressions as they're related to schwas are as such a forward-looking statement. Investors are cautioned that all forward-looking statements involve risks and uncertainties that may cause actual results to differ from those anticipated by Schwoz at this time. Additional information on factors that could cause results to differ is available in the Schwoz earnings release and on the Form 10-K for the year ended December 31, 2020, and the Form 10-Q for the quarter ended March 31, 2021. In addition, other remarks are more fully described in Schwoz's public filing with the U.S. Security and Exchange Commission, which can be reviewed at www.sec.gov or on the company's investor relations website. I would now like to turn the call over to Justin Dye.

Thank you for joining us this afternoon. I will provide a business update and some brief commentary on the industry afterwards. Our CFO, Nancy Huber, will review our first quarter financial results in detail before I conclude our presentation with some final thoughts. We would then be happy to take your questions. During the first quarter of 2021, the company announced the completion of its acquisition of Starbucks, bringing our total number of retail dispensaries to 17, including four Mesa organic dispensaries acquired in April of 2020. and now rebranded as Starbucks. During the quarter, we announced a quarter one 2021 revenue increase of $19.3 million compared to $3.2 million during the same period, representing a 504% increase. Proforma revenue calculated as if we had owned all the Starbucks dispensaries from January 1st for the first quarter 2021 was estimated at $26.8 million. The company's adjusted EBITDA for the first quarter of 2021 was $5.8 million. I'm also pleased to report that we also recorded positive cash flow from operations of $1.7 million compared to last year's loss of $2.5 billion. Same-store sales of the 13 Starbucks dispensaries when compared to last year prior to taking ownership of the assets, were $18.8 million, up 38%. Most notably, the average consumer basket size was $58.79, up 19.5% over quarter one of last year. And recorded customer visits have also increased 15.8% to 319,800. The company does not have equivalent prior year data for the four Mesa organic stores acquired in April of 2020, but that data is expected to be included in the next quarter. Since completing all of our acquisitions, approximately 80% of our revenue is derived from retail and 20% from our wholesale business. Through our implementation of the Synergy Realization Office, or SRO, we have been able to effectively contribute to growth and efficiencies that are being factored in retail locations. At our Purple Bees manufacturing division, we saw an increased production output grow from 76 kilograms in April of 2020 to 225 kilograms in April of 2021, 196% increase. At Mesa Organics, we recorded retail product margin growth from 42% to 56% from April 2020 to April 2021. And at Starbucks, our retail product margins increased from 50% to 58% from December 2020 to April 2021. We're still refining and holding our business practices with elevated retail disciplines and product efficiencies. in areas such as purchasing, stocking, and general merchandising. 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. We expect these practices will continue to positively impact our efficiencies across the board going forward. At this time, we have no comment on the status of federal and state government laws regarding cannabis legislation. However, We are, as always, closely monitoring any federal and state changes that would impact our industry and are poised to make any changes necessary. Our ongoing efforts to increase our retail footprint include the recent application for home delivery of products to Aurora, a suburb of Denver, Colorado. The expectation is that this application will be approved based on previous experience with submittals and approvals. We're planning on quarter three entry into the home delivery marketplace. And now let's move towards the Colorado cannabis market in general and where Schwoz sits in. Based on recent BDS analytics estimates, Colorado sold $557 million of adult use and medical cannabis product during the past quarter, an approximate 25% growth year over year compared to $444 million recorded in the same quarter last year. I'm pleased to report that Schwoz surpassed this number by 13%, for those stores where we have year over year measurement, demonstrating our ability to outpace and capture market share in this hyper growth industry. Colorado's growth was directly driven by an increase in retail units from 59.5 billion units to 76.3 million, representing an increase of 28% year over year. We expect that 2021 will be another record year for Colorado due to the quarter over quarter growth rates from Q4 2020 to Q1 2021. Based on conversations with our customers, as habits have changed along with the entrance of new cannabis consumers, or as we like to refer to them, canna-curious consumers, keep in mind that the market was somewhat supported by COVID stimulus and relief checks. Therefore, the growth rate for the remainder of 2021 may be tempered as the relief is eliminated. However, we strongly believe that the underlying Colorado market has changed by an order of magnitude greater than the benefits realized from stimulus relief. For example, 16.9 million more units were sold in quarter one of 2021 compared to quarter one of 2020, demonstrating that Colorado will continue to operate as the second largest legal cannabis market in the U.S. with greater than $2 billion in sales. Turning to the future, we continue to evaluate additional opportunities across the cannabis industry in the areas of cultivation, manufacturing, and retail dispensaries. Our criteria for potential acquisition includes the following revenue growth or growth potential that exceeds Colorado's averages, EBITDA profitability with synergy opportunities, attractive acquisition prices that are accretive to our shareholders, and provides additional products and services in our attractive locations. Any announcements regarding expansion intentions will be made once we've reached definitive agreements with prospective partners. Let me also reiterate that we believe our home state of Colorado represents an attractive geography to continue building out our platform. Since it provides us with the opportunity to acquire targets that are sophisticated and profitable and have already weathered the early boom and bust cycle of the industry. And now I'd like to turn the discussion over to Nancy to continue our first quarter financial review.

Thank you, Justin. I'd now like to review our financial results for the quarter ended March 31st, 2021. As Justin mentioned at the top of the presentation, total revenue for Schwoz during the first quarter was $19.3 million. representing an increase of approximately 504% compared to $3.2 million during the same period in 2020. With the refocus of our business on plant touching dispensaries, manufactured infused products, or MIPS, and cultivation, we have changed our segment reporting to more closely align with how we manage and evaluate our business performance. We will now be discussing our segments by retail, which includes dispensaries, wholesale, which includes MIPS, Big Tomato, and Success Nutrients, and other, which includes revenues from consulting and other small revenue areas. Retail sales for this quarter were $11.8 million compared to prior year of no retail sales recorded, and wholesale operations revenue, which increased to $7.4 million from $2.5 million and other, which was $0.1 million this period and $0.7 million the previous year. The increase in retail and wholesale revenue is attributed to the acquisition of Mesa Organics in April 2020 and the completion of the acquisition of Starbuds in March 2021. The decrease in other is due to the reduced focus in consulting. Total cost of goods and services were $12.1 million during the three months ended March 31st, 2021, compared to $2.1 million during the same period in 2020. This increase was due to increased sales in retail and wholesale and a one-time $2.2 million purchase accounting charge for writing up inventory to fair market value for purchase accounting for the Starbucks acquisition. Gross profit increased to $7.3 million during the three months ended March 31st, 2021, compared to $1.1 million during the same period in 2020. Gross profit margin increased as a percentage of revenue from 32.9% to 37.5%, mostly driven by the strength of Mesa Organics and Starbucks acquisitions. Adjusted for one-time purchase accounting, the gross margin for Q1 2021 was 48.9%. Total operating expenses were $8.7 million during the first quarter, compared to $5.2 million during the same period in 2020. The higher expenses were due to increased selling, general and administrative expenses from the addition of the dispensaries, professional service fees, and non-cash stock-based compensation. Q1 2021 adjusted EBITDA was $5.8 million, 30.2% of revenue. This is derived from net loss before income taxes, adjusting for other income, one-time expenses, merger and acquisition and capital raising costs, non-cash related compensation costs, and depreciation and amortization. See the financial table in our press release for adjusted EBITDA details for Q1 2021 adjustments from net loss before income taxes for the quarter. Q1 2021 net loss was $3.6 million or a loss of approximately 9 cents per share on a basic weighted average as compared to a net loss of $1.4 million or a loss of approximately 3 cents per share. on a basic weighted average during the three months ended March 31, 2020. During the first quarter, the company generated positive operating cash flow of $1.7 million and $21.7 million in total cash flow, ending the quarter with $23 million in cash and cash equivalent. Turning now to the outlook for 2021, we are updating our guidance projections related to the low end of previous guidance increasing revenue guidance from $105 to $110 million and adjusted EBITDA up from $28 million to $30 million on the low end. Therefore, our revised guidance now includes projected revenue of approximately $110 million to $125 million and projected adjusted EBITDA of approximately $30 million to $36 million. The company remains optimistic regarding the full year based on reported results to date, the completion of the Starbucks acquisition, and the integration of the two companies which is proceeding above expectations. Thank you for your time today and now I'd like to turn back to Justin who will open the call to questions.