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spk01: Good afternoon. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to Schwa's first quarter conference call. Note that all lines have been placed on mute if you are on the phone to prevent any background noise. After the speaker's remarks, there will be a live question and answer session via the web. If you would like to ask a question during this time, please type in the appropriate box. And I would like to turn the conference over to Joanne Jobin. Please go ahead.
spk03: Thank you. Greetings and welcome to the 2022 first quarter 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 their 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. Examples of forward-looking statements include, among others, statements regarding federal and state legislation and regulation and Schwoz's future results of operations and financial positions. business strategy and plans, and objectives for future operations. The words expect, anticipate, could, enable, estimate, intend, accept, believe, potential, will, should, project, position, objective, determine, vision, plan, target, 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 events, results, performance, or achievements to differ from those anticipated by Schwoz at this time. Additional information concerning factors that could cause events, results, performance, or achievements to differ materially is available in Schwoz's earnings release made available before this call and available on Schwoz's Investor Relations website and in Schwoz's Form 10-K for the year ended December 31st, 2021, and Form 10-Q for the three months ended March 31st, 2022. In addition, other information is more fully described in Schwoz's public filing with the U.S. Security and Exchange Commission. which can be viewed at www.sec.gov or on the company's investor relations website. Also, Schwoz may discuss non-GAAP financial measures during today's call. A reconciliation of the differences between the non-GAAP financial measure disclosed during the call with the most directly comparable GAAP measure can be found in the earnings press release made available before this call and available on Schwoz's Investor Relations website. I would now like to turn the call over to CEO and Chairman Justin Dye.
spk04: Hello, and thank you for joining us this afternoon. I will provide a business update, and our CFO, Nancy Huber, will review our quarterly financial results in detail before I conclude our presentation with some final thoughts. We would then be happy to take your questions. Schwoz achieved a remarkable performance in 2021, which continued into the first quarter of 2022. Our team continues to nurture our vision of becoming the most admired cannabis company by making a difference in our communities and providing trusted products and experiences that improve the human condition. Our growth plans remain on track. And despite a challenging quarter for the entire industry, we remain steadfast and determined in our long-term plan of building a distinguished house of brands that are driven by passion for innovation, craftsmanship, efficiency, and teamwork. Despite navigating the lingering effects of the pandemic in a challenging environment in our Colorado market, Our team members delivered revenue growth and positive operating cash flow while continuing to grow faster than our market. I would like to thank all of our team members for their hard work, enthusiasm, and commitment to driving operating excellence. Since December 2021, Schwoz has added 14 cannabis dispensaries to its retail network, 10 in New Mexico, four in Colorado, as well as five cultivation facilities, including four in New Mexico and one in Colorado, and one manufacturing asset in New Mexico. Our accomplishments during the first quarter of 2022 included on March the 23rd, the company's common stock commenced trading under the symbol SHWZ, on the NEO exchange, a tier one Canadian stock exchange based in Toronto, Ontario. In March, we also signed defendant documents to acquire all the assets of Urban Health and Wellness Inc. The proposed transaction includes the adult use urban dispensary, as well as 7,200 square feet indoor cultivation, both located in Denver, Colorado. On February the 16th, we announced the acquisition of the assets of Brow 2 LLC, a Denver-based cultivation asset, which includes a 37,000 square foot building for indoor cultivation and equipment. In February, we also acquired the Emerald Fields brand, the owner and operator of two retail cannabis dispensaries located in Manitou Springs and Glendale, Colorado. We officially became a regional MSO when we acquired the New Mexico operating assets of Reynolds Greenleaf and Associates LLC and the equity of Elemental Kitchen and Laboratories LLC. This transaction included 10 Greenleaf licensed medical cannabis dispensaries, the R. Greenleaf brand, four cultivation facilities, three operating and one in development, and one manufacturing campus. Along with our newly formed MSO status, we formed a strong Schwoz New Mexico leadership team with Steve Pear as our New Mexico division president, along with Alex Valterhan and Jacob White, both from our Greenleaf and associates. We also announced that we are adding additional key roles at Schwoz to support our significant expansion within manufacturing, cultivation, and Information Technology. Key members included Dave Kaufman as VP of Manufacturing and Supply Chain, Robert Piziali as VP of Cultivation. In late January, we announced the acquisition of the assets of Drift, which consists of two cannabis dispensaries located in Boulder, Colorado. Our plan is to continue to build and develop our decentralized operating system that fosters agility, efficiency, and responsiveness to our customers and local communities. Most importantly, we continue to build our house of brands, adding Emerald Fields and our Greenleaf dispensaries and expanding the Purple Bees vape brand in both Colorado and New Mexico dispensaries and across the state of Colorado and other dispensaries. With the expansion of our retail square footage and cultivation capability, We expect to launch our small batch crafted flour brands in our dispensaries in 2022. Last week, we announced a licensing agreement with Lowell Farms to bring Lowell Smokes, a premium line of pre-rolled joints to dispensaries statewide in both Colorado and New Mexico. We also plan to add a distribution center in Colorado as part of a retail wholesale playbook expansion. Now a word about New Mexico. On April 1, 2022, we commenced selling both recreational adult use and medical cannabis in New Mexico. We cannot report hard numbers for retail revenue as of yet, but we can say that we're pleased with the sales trends that we're seeing so far. We have an excellent retail footprint now established in New Mexico, and we expect to report on revenue growth from this category in the near future. Our revenue for Q1 totaled $31.8 million and represented an increase of $12.4 million or 64% compared to quarter one, 2021. We reported a net loss of $26.8 million compared to a net loss of $3.6 billion for the same period last year. This was due to a number of items unique in the quarter. Nancy will discuss in greater detail later on this call. The company's adjusted EVA-DA for the quarter was $7.9 million, or 25% of revenue. We're pleased to report that retail sales for the quarter were $26.5 million, up 124% when compared to the same period last year. Colorado two-year stacked IDs for quarter one 2022 compared to Quarter 1, 2021 and 2020 for the same store sales were 22.7%. And one-year identicals were down 8.1% when comparing Quarter 1, 2022 to Quarter 1, 2021. Average basket size for Quarter 1, 2022 was 59.21, down slightly. at 1.7% compared to Quarter 1, 2021. Recorded customer visits for Quarter 1, 2022 totaled 415,308 and were down 6.4% compared to Quarter 1, 2021. New Mexico two-year stacked IDs for Quarter 1, 2022 compared to Quarter 1, 2021 and Quarter 1, 2020 for same-store sales were 37.3%. And one-year identicals were negative 1.9% comparing quarter one 2022 to quarter one 2021. Average basket size for quarter one 2022 was 59.94 or down 1.6% compared to quarter one 2021. Recorded customer visits for quarter one 2022 totaled 122,913. And we're down slightly. at 0.3% compared to quarter one, 2021. While basket sales and customer visits for both Colorado and New Mexico were down quarter over quarter, attributed to macro events and previous year stimulus spending, we're pleased to report that we once again outpaced the industry in the state of Colorado for the quarter by 10.2%. which is a remarkable achievement when you consider the macro challenges faced by the industry at this time. We believe that we will continue to cycle COVID-19 retail numbers for the first half of the year. We anticipate growth in the Colorado market to continue to be challenging this year. However, we expect the adult use market in New Mexico will help offset that slower growth. For now, we do not have a service such as BDS Analytics that publishes comparable market stats in New Mexico. Therefore, we will be working on how to compare our performance in that state in the near future. This quarter, we generated approximately 83% of our revenue from retail. We expect the contribution from the retail segment to continue to grow as we add to our dispensary count and add recreational sales in New Mexico. Through the implementation of our operating playbook, we continue to effectively contribute to growth and efficiencies that are manufactured in retail locations. In retail, we continue to review our product categories, aligning a product assortment across our dispensaries and working with our vendor partners to promote products. We're in the process of remodeling four StarBuds dispensaries and rebannering and remodeling the drift and smoking gun dispensaries. which we expect to be completed by the end of quarter two. In quarter one, we also integrated four acquisitions, and at this time, all of our acquisitions have moved to Schwoz's accounting and retail systems, and will be on a single payroll system by the end of the month. As for the federal and state government laws regarding cannabis legislation, we can report once again that there has been no significant movement or changes on any of the federal acts. Although the House passed the Moore Act again, we remain skeptical it will pass in the Senate. We expect that all parties will continue to look at financial and legal reform in cannabis laws and perhaps pass either the Moore Act or Safe Banking Act or something similar, but the timing is anything but clear. In the meantime, we continue to invest in our customers and our communities. On a positive front, more states continue to legalize both medical and adult use cannabis. As always, we will closely monitor any federal and state changes that would impact our industry and are poised to make any changes necessary. We will continue to evaluate additional opportunities across the cannabis industry in the areas of cultivation, manufacturing, and dispensaries in both our home states and others. Our current criteria for potential acquisitions includes revenue growth or growth potential that exceeds the applicable state's averages, EVA-DA profitability with synergy opportunities, attractive acquisition prices that are accretive to our shareholders, provides high-quality branded products, and attractive retail locations. Any announcements regarding expansion intentions will be made once we've reached definitive agreements with prospective partners. And now I'd like to turn the discussion over to Nancy Huber to continue our financial review.
spk02: Thank you, Justin. I'd now like to review our financial results for the first quarter of 2022. As Justin mentioned at the top of the presentation, total revenue for the first quarter was $31.8 million. an increase of $12.4 million or an increase of 64% compared to $19.3 million in Q1 of 2021. Total revenues for the quarter included retail sales of $26.5 million compared to $11.8 million. Wholesale revenue were $5.2 million compared to $7.4 million The drop in revenue was largely due to wholesale distillate pricing pressure and oversupply in the state of Colorado. And other operating revenues reported were $44,000 compared to $78,000. As a reminder, we added two Starbuds dispensaries in February and five dispensaries in March of last year. And we've added Emerald Fields Drift Brow 2 in New Mexico in late January to mid-February of this year. Much of our revenue growth this quarter is due to these acquisitions. Total cost of goods and services for the first quarter of 2022 totaled $20.8 million, compared to $12.1 million for Q1 of 2021, representing an increase of $8.7 million, or 72%. This increase was due to increased sales and growth through acquisition. The cost of goods and services increased at a higher rate than the revenue due to purchase accounting on retail acquisitions made in each of the first quarters. In Q1 2022, we had $6.3 million in additional cost of goods due to purchasing accounting compared to Q1 2021, which reported $2.2 million of additional cost of goods due to purchase accounting. Gross profit increased to $10.9 million for the first quarter of 2022, compared to $7.3 million for the same period in 2021. Gross profit margin declined as a percentage of revenue from 37.5% to 34.4%. Although net of purchase accounting The gross margin increased from 48.7% to 54.1%. This positive result continues to reflect our consolidated purchasing approach and the implementation of our retail playbook, as well as more vertical product sales in New Mexico. Operating expenses for the quarter totaled $15.7 million, compared to $8.7 million reported during Q1 of 2021. This represented an increase of $7 million, or 80%, and was due to increased selling, general and administrative expenses, including acquisition costs, professional service fees related to acquisitions, salaries, benefits, and related employment costs, mostly related to the increase in number of dispensaries in our retail network. Other expenses net for Q1 2022 totaled $20.7 million, compared to $1.7 million during Q1 2021, representing an increase of $19 million. The increase in other expense net was due to an increase in the interest payments due to various loans and from the non-cash loss on derivative liability related to our 13% senior secured convertible notes due in 2026. As a result of the factors discussed above, a $26.8 million net loss was generated for the quarter compared to a net loss of $3.6 million for the same period in 2021. This loss includes non-cash charges totaling $16.9 million, which includes the derivative liability of $13.4 million, depreciation and amortization of $2.5 million, and non-cash compensation of $1 million. as well as acquisition and capital raise costs associated with the closing of recent acquisitions of $9.1 million, including $6.3 million of purchase accounting costs and $2.8 million of additional related costs. The substantive changes the company experienced this quarter certainly complicated our income results. And as we move forward, we are targeting positive operating income if we do not have significant acquisition activity. The company generated net operating cash flow for the quarter of $5.8 million compared to $1.7 million for the same period in 2021. The company reported cash and cash equivalents of $47.7 million at the end of Q1 2022. Adjusted EBITDA for the first quarter was $7.9 million, representing 25% of revenue, compared to $5.8 million for the same period last year. This is derived from operating income and adjusting one-time expenses, merger and acquisition and capital raising costs, non-cash related compensation costs, and depreciation and amortization. See our financial table for adjusted EBITDA in our news release for details. Turning now to the outlook for 2022, the company has provided guidance which excludes transactions that are announced but not closed. Our Q4 2022 run rate projected revenue guidance remains unchanged and is approximately $220 million to $260 million. and we are projecting Q4 2022 annualized adjusted EBITDA from $70 million to $82 million. The company remains optimistic that 2022 will be another pivotal year as we integrate and synergize our recent acquisitions and continue our expansion and M&A plans. Thank you for your time, and now I'll turn it back to Justin.
spk04: Thank you, Nancy. And I want to thank all of you for your continued support, encouragement, and interest in Schwoz. You know, we're committed to building a long-term profitable company and building a really terrific company. We would now be happy to take your questions. To ask any questions, please click on the link on the investor relations portion of our website and submit. Thank you.
spk03: Thank you, Justin and Nancy. Also joining us here today is Nirup Krishnamurthy, our Chief Operating Officer, who will also be available to take questions from the audience. My name is Joanne Jobin. I am the IRO for Schwoz, and I will be moderating the Q&A on behalf of the team today. The first submitted question is, Justin, how do we keep outpacing the state? That's five quarters in a row now. Quite impressive, considering the state is down once again.
spk04: Yeah, thank you, Joanne. We actually outpaced the state by over 10%. So we're proud of continuing to build market share and continuing to grow with our playbook. We're applying operating efficiencies at retail and on the supply chain. And we continue to work on effectively driving growth. And if you look at Purple Bees, our manufacturing division, we implemented our MRP system to improve production planning and costing decisions, which gives us really great visibility to make good decisions. Our first vendor summit in September last year, we estimated 83 Colorado suppliers reviewed their product plans, and we figured out how to grow our business to outpace the market and continue to grow market share. In retail, we continue to review our product categories and making sure we have the right products with the right promotion, the right pricing, with the right shelf placement. We now have two-year stacked identicals for Colorado and New Mexico. Colorado two-year stack comps for Q1 compared to 21 and 20 was 22%. So that's good, healthy growth on a two-year basis. Our one-year identical, we were down 8.1%. When you compare versus 2021, Colorado was soft, and it was soft in the first quarter. We think that's temporary. We continue to like Colorado. We're going to continue to grow in Colorado and consolidate and continue to execute there and drive market share. We think that's a winning strategy, and we're going to stay very consistent with our plan. If you look at the average basket size, we were down slightly, 1.7%. Customer visits were down 6.4%. We're going to continue to work on driving customer traffic with new products and interesting promotions and a great retail experience. If you look in New Mexico, the two-year stacked ID there was 37.3%. So the two-year base is growing very healthy. We're slightly down in a one-year identical comparison to 2021 of 1.9%. And frankly, we're going to see that grow as adult use comes into play, which we kicked off April the 1st in New Mexico. So we use the two-year stacked IDs because we've had a lot of pandemic effect, et cetera. So this quarter, it was a messy quarter. A lot of noises. We're cycling. Tough comparables. And I think, you know, we've seen some market softening and, you know, we'll continue to see, I think, Colorado be soft first part of the year, first half of the year. But we're looking forward to really kind of continue to pick up momentum towards the back half. So that's, you know, proud of the team. A little noisy quarter. We had a lot of one-time costs in there from acquisitions, et cetera. But we're committed to continue to grow the business and, I think the team did a nice job in the first quarter.
spk03: Thank you, Justin. Next question about New Mexico. What is the pipeline looking like in the New Mexico market? What sort of ramp-up investment will we see with the delivery model? Is there a chance we can see a tuck-in deal to bring more areas into it? And how has the market been so far? Are you seeing a higher influx than expected?
spk04: Yeah, let me, it's really, if you look at adult use kicking off April the 1st, we see good growth from a traffic perspective as well as really seeing the adult use basket be very strong as well. Certainly on the border, the Texas border, sales tend to be stronger than they have been in other parts of the state. But even in other parts of the state, it's still growing. So we like the opportunity. We really love what we have there. We think our Greenleaf is the perfect platform. Terrific retail stores. I think best in market service. And we're working on merchandising and working on getting more product, displaying product, et cetera, there. But we're very excited about it. And I see us having a lot of organic new store opportunities there. When I say a lot, I could see, you know, somewhere between four and ten new stores in the next 12 to 18 months. I don't want to commit to that, but there's a lot of opportunity there. I think we've got a really winning hand there, and we're going to continue to work on that. And then the team's done a nice job of working on the supply chain, so distribution, cultivation, manufacturing, and we have a very solid team there. So we're really excited about New Mexico. You're going to see us continue to work on the organic front. And yes, I do think there's some Acquisition candidates there that will be we're going to be very thoughtful about. We'll pick our spots. And pick the right ones that bring good brands that bring new capabilities to us to give us a, give us an edge and give us innovation down there. So we were happy with New Mexico and excited about the future.
spk03: Thank you, Justin. Can you provide more detail on the Boulder County situation, and has the situation fully recovered? I think this is a question for Nirup.
spk05: Good afternoon, everybody. Yeah, I can quickly touch upon it. The Boulder County, as you know, was impacted by the fire in January. Our store was closed for two days, but since opened and we are back in business now the traffic has rebounded not all the way yet because uh to my understanding um there is still at least a thousand homes being uh rebuilt and so we expect that traffic to come back over time as we uh as uh progress is being made on that front uh our sales uh has of course rebounded though since uh since the january fire
spk03: Thank you, Nirup. Can you please provide an update on how this year's cultivation is performing for both Colorado and New Mexico, and what levers you can pull to increase that capacity in New Mexico, given the regulatory environment there? I think that... Oh, Nirup, I'm sorry. Apologies.
spk05: Okay. So yeah, in New Mexico, we have invested in the supply chain, especially in cultivation. We are building capacity. We expect capacity to come online here in the significant increase in capacity in the third quarter. And we expect that to fulfill our supply needs, as Justin mentioned earlier on, in terms of our expansion over the next 12 to 18 months. We believe we are well positioned to provide enough supply for our stores over the next year and a half or two. So we are very happy with the progress there. We're building a state-of-the-art facility and it will be a crown jewel in our cultivation footprint across both states. As far as Colorado is concerned, we acquired two growers in the last six months and we are working on those growers to expand the capacity there as well, both from a wholesale and from an internal retail standpoint. Our goal is to drive 50% of our own flour into our stores, and we will get started on that here pretty quickly. However, I just need to emphasize that our model here is to provide choice to the customer. We will have a wide variety of selection of flour, both ours and from our suppliers, and that has always been our operating model, and it will always be that.
spk03: Thank you, Nirup. And while you're here, I've got one more question for you. Can you give more color to what expectations are regarding the Lowell Farms partnership?
spk05: Of course. We signed our partnership last week, and we are really excited. Lowell Farms is the number one performer in California when it comes to premium pre-rolls and other products. And our partnership allows us to be the exclusive manufacturer of Lowell Farms products in Colorado and New Mexico. And we are really excited to provide that capability and that offering to both states. We will start initially with Colorado to begin with and follow it up very quickly with New Mexico once our supply chain comes online. So we are really excited.
spk03: Thank you, Nirup. And now we're going to swing back over to Nancy with a couple of financial questions. We noticed that there has been a revision in the way that you report guidance. Can you comment on that, please?
spk02: Yeah. This year especially, the integration timing is very hard to predict. There's a number of factors that impact that, COVID, the way the states are responding to licensing requests, et cetera. So we felt very confident about our Q4 numbers, but are less certain about how they're going to progress from Q1 to Q4. So that's why we've given guidance on Q4 and annualized that rate. So you have a good idea of where we anticipate to be by Q4 of this year and ongoing run rates given the current acquisitions that we have.
spk03: Okay. Thank you, Nancy. And one more. Can you walk us through the net loss for this quarter? It seemed to be quite large compared to Q1 2021. Yep.
spk02: So I did this on the call, but I'll reiterate. We had a $26.8 million loss for this quarter. $16.9 million of that is non-cash charges, the largest of which is a derivative liability, negative impact of $13.4 million. This is associated with the convertible debt that we have. and every quarter we'll be marking that to market and that will create a positive or impact negative or non-cash charge to our P&L. So you may see significant swings based on that derivative liability calculation. What happens is when stock prices go up, the liability goes up and that has a negative impact to our P&L, which is what happened in Q1 of this year. If the stock price goes in the opposite direction, we'll have the opposite effect. So if stock prices go down from the end of one quarter to the end of the next quarter, the liability will go down, but it will have a positive impact to the P&L. So that's part of the reason why we forecast adjusted EBITDA versus net income is because some of these things are very hard to forecast over the course of a quarter. In addition to that $13.4 million, there was depreciation and amortization of $2.5 million and non-cash compensation of $1 million. And then we had $9.1 million associated with acquisitions and capital raising, 6.3 of which is purchase accounting. Again, that's kind of a non-cash related cost. And then $2.8 million of actual cash related costs associated with the acquisitions. So hopefully that helps explain why there was such a large loss. In addition to that, we had interest expense of $7.3 million. So that does have an effect as well. And if you remember, many of the acquisitions weren't closed until about midway through the quarter, so we didn't have income to offset that interest expense. As we move forward, we're targeting positive operating income if we don't have significant acquisition activity, again, to kind of muddy the waters.
spk03: Thank you, Nancy. And now the question that seems to be the most important one for many businesses is can you speak to inflation and how that is impacting sales or is expected to impact sales? Perhaps, Justin, you can answer that.
spk04: You know, I think we're going to continue to watch the situation. I mean, it's troubling to see, you know, on the coasts, uh where a gallon of gasoline is six dollars and you continue to see uh rate increases uh from the fed so i think that's going to put some pressure on the general economy certainly we're seeing inflation pressure uh in commodities etc and we're going to have to continue to watch that as we move forward uh you know if you look at the economy the economy is still strong in terms of uh jobs etc so it's a little bit mixed there but we're certainly going to have to keep our eye on that and we're going to have to look at you know watching disposable income and and see how that translates into our products the good news is the cannabis sector has held up very well uh it's a part uh it's a big part of a number of uh our customers lives uh for medical reasons and for adult use reasons. So we remain optimistic, but certainly we've got to continue to watch what's happening with the Fed and watching inflation as it moves through. And our team's trained to do that. We're watching inflation numbers on our inputs on the cost of goods. We're certainly watching that in terms of how we price products and promote products. So there'll be more to come. I think it's fairly dynamic right now. We're going to have to continue to evaluate and watch it.
spk03: Thank you, Justin. Another question. Can you speak to the whole pricing pressure and oversupply? Where do we stand today and how do you see this situation playing out over the rest of the year? Justin? Or Nancy? Go ahead.
spk02: Why don't I speak to that? So we do have some pricing pressure still going on in wholesale distillate pricing we have started to see a little bit of movement it turns the positive effect there but not significant we have seen orders bounce back in that area though so we kind of flushed out the volume issue but we are seeing continuing price pressure in that wholesale area okay next question
spk03: Apparently somebody noticed a large increase in inventory. Is this in anticipation of New Mexico adult use or another reason?
spk02: So overall, the inventory increased with all of our acquisitions. We had a number of acquisitions this quarter, and as such, those dispensaries as well as the inventory in New Mexico was added to our balance sheet. And we did, in fact, position ourselves to give to buy some inventory in New Mexico in anticipation of adult use. So we probably have a little bit heavier inventory in that area than we might plan on practically having in the long term, but that wasn't the significant number. The significant impact was just the addition of the acquisitions.
spk03: Okay, thank you, Nancy. This is a question that always comes up. Will you be looking to do another raise in 2022 or even potentially refinance the current debt? Are these possible in the future?
spk02: Anything's possible. We constantly are looking at our debt and determining whether we can do better. So if we have an opportunity to lower the interest rate and have a positive impact long-term with investors, we would certainly do that. Today, we do have cash on our balance sheet to make acquisitions that we're looking at right now. But depending on what acquisitions might present themselves, again, we would potentially look at doing something if we felt we couldn't make that acquisition with the cash we have on hand or our equity as we have it.
spk03: Thank you, Nancy. Here's a question for Nirup. Now that you are fully vertical with Grow Operations, can you discuss how you expect this to impact your sales and products going forward?
spk05: Well, in New Mexico, we are fully vertically integrated. We bought the business fully vertically integrated. Our aim there is to provide innovative products as we develop our capabilities over there and make it make it attractive for the customers to shop us. Of course, being vertically integrated improves our margins significantly. In Colorado, we just acquired two growers in the last six months or so, and we are actually working to introduce product from there into our stores going forward. Now, what it allows us to do here also is to create our own branded flower. Again, with a view of offering customers products that they want with highest quality, and it will help us drive sales and bring customers into our stores. So our goal is to have 40% to 50% of our products internally produced. That's our long-term goal, and we're getting started now.
spk00: So that's where we are.
spk03: Thank you, Nirup. The improvements you've seen in product margins and revenues continues to be impressive. Do you think you can continue this trend? Nancy?
spk02: So we're continuing to execute on our operating playbook and all our acquisitions. And as Drew just talked about, we're planning on creating a little bit more verticalization in our Colorado environment. So we hope to see margins improve there because of that. On the other hand, we might see the opposite effect in New Mexico. As we add products that become available in the market, then we may see margins eroding a little bit in New Mexico. And then we're going to continue to evaluate how much of that margin we take to the bottom line versus what we might use to promote. So we have been very leery of projecting significant increases in our gross margins because we're not sure, we expect to see improvements in margins, but whether we actually put that into the bottom line or actually use that to promote and drive revenue is uncertain and it'll very much depend on the situation.
spk03: Thank you, Nancy. All right, let's go back to Justin. When or which year can we expect to see a third state entry as you expand into your super regional status?
spk04: I think we get that question every quarter and every endless conversation. You know, let me make just a few comments. I think our shareholders and customers, employees are always interested in this. You know, we had a messy quarter with a lot of one-time costs, but we did a bunch of things that were built for the long-term foundation. And the one-time costs associated with M&A, as well as some of the derivatives charges that were non-cash, et cetera. We set ourselves up really well for the rest of the year to exit 2022 as we projected. And we're very confident about that. So I think that's part of the good news. The other good news is we've got $47 million of cash on the balance sheet that is a war chest for us to go invest in the business and to grow and outgrow our markets. And we're going to do that. So we're going to obviously always be uh thoughtful about how we spend our money but we're setting this thing up so we can win in colorado and new mexico and we have a lot of opportunity there to grow within those states and leverage all the investments that we've made so you're going to continue to see that before we get into uh the next day so we're going to stay committed to the process we're building a company that's built on you know we have a great we have great team members that are really passionate about cannabis and innovating and new products and new services and exceeding customers' expectations and driving improvement every single day. So I think all of that translates, that philosophy, those values across nearly 1,000 people in this organization is going to fuel us well in the future. We will look at other states down the road, but we have a lot of opportunity within these states. I'm really excited about what our future looks like in terms of launching new products and brands and having success with the Purple Bees vape cartridge line that we've launched that has done very well. Launching Lowell Farms, which is a great brand, number one brand in California. They chose us and we chose them to partner in our market. So those are going to be new, innovative products with great brands that we'll sell within our branded dispensaries. And we're building this thing the way we want to. So I'm really excited about where we're headed. Other states are down the road. Right now, we're going to focus on what we're doing. And that's focused on retail dispensary first, and then building a house of brands and driving efficient supply chain operations. So as we've said from day one. So we're going to continue to follow the process, and it's going to serve us well.
spk03: Thank you, Justin. And now I'm going to put these two questions together. They're regarding New Mexico again. One part is, what did you learn that you were not expecting about the new Mexico adult rec opening? And are you making any concerted effort to buying or opening dispensaries near the New Mexico-Texas border or the Texas wall, as we call it.
spk04: You know, I would say a couple of things that we learned there. I think partnering with a new state and a new department that's overseeing cannabis sales and distribution, I think we've learned a lot. I think they did a nice job, but I think they are understaffed like a number of other departments, so things always take time. And I think that our team has done a nice job partnering with the state and local jurisdictions. So I think always timing is something in terms of getting things approved. You know, we wanted to try to get the acquisition closed sooner. We closed, you know, mid-February, so we didn't have some of that income to offset some of the one-time charges. But, you know, we'll see that. You'll see a truer picture coming through the second quarter in performance. The answer is we obviously like a number of opportunities within the state. The state has needs for dispensaries across the state, and we see both on the Texas border as well as in other really nice communities where we think we can have really nice dispensaries and serve the customer base there. So you're going to see us opening new stores that are organic where we build new stores or we – We'll lease existing square footage and build really top-notch stores and offer great products and service there and leverage that. And we're also open to acquisitions. So you'll see us using our balance sheet to do that as well. But we're going to continue to work hard on Colorado and New Mexico. And our goal is to be number one in both states. And we're going to continue to work on that and creating distance between us in the competition, and that's been the mission. And we're going to continue to do that. We think that's going to provide great returns for our shareholders.
spk03: Thank you, Justin. Starbucks facility in Denver on Colorado Boulevard appears to have opened earlier than planned. Can you describe some of the attractive elements of this dispensary? Narup?
spk05: Yeah, of course. I mean, in terms of the attractive elements, there's quite a few. You know, that store is located in a very, very busy intersection on Colorado Boulevard, and it is very convenient for our customers to come in and shop with us. That's number one. Number two is it's a large footprint, and what we are doing is creating a flagship store in that location for our customers. That work has begun, and it will take a few months to complete. But we have already opened the store under the Starbirds banner. We also have a drive-through options there. And we see people driving through and picking up their products. So there's a lot to talk about that location, about that store. And the best is yet to come. So, you know, we are very, very happy with that spot.
spk03: Thank you, Nirup. Here's a great question. Given the current share price and the large cash balance sheet and positive cash flows, any chance of a share buyback? Nancy?
spk00: You know, Joanne, I'll take that.
spk04: Apologies. No, that's okay. In terms of a share, we think our capital is probably best served to continue to invest in you know, building the business. So we just think the returns are going to be better there, and I think that's what our investors expect. So we have no plans for a sure buyback at this time.
spk03: Thank you, Justin. And last question for today before we wrap up. What is the plan for the company in three to five years? Where do you expect to be? Could a buyout be in the works?
spk04: Like we said, we're focused on building a really strong regional operating business that's predicated on great team members and innovation and products and building a house of brands that we're really proud of that are sticky, that customers demand and want. And we'll do that across multiple states. And I think you'll continue to see us be very disciplined with how we operate the company, drive efficiencies, launch new products, create brands, and invest in acquisitions and be good stewards of capital. So we're going to do more of the same that we're doing. I think you'll see our footprint continuing to grow with the same disciplines around managing our capital, investing for good returns, and building uniqueness in the business. So more to come and more of what we're doing, but I certainly could see us being in more states.
spk03: Thank you very much, Justin. And that is all of the questions that we have today. Before we sign off, Justin, do you have any final remarks before we end the call today?
spk04: I just want to thank our team members for all their passion and purpose and uh, enthusiasm and driving the company. It is, it is a thrill and an honor to get to work with them. It's so exciting to go into the stores and manufacturing and the cultivation facilities and just see how people are excited about our company and making a difference. And, uh, you know, that's, that's contagious. And, uh, we've got really good people, great leadership team and excited about continuing to do what we're doing. And we certainly, uh, thank our customers and our shareholders. Our board of directors expect us to be excellent. I think they're very proud of what we're doing. And I want to thank them for their support and certainly appreciate everybody's interest in our company. And we're going to continue to follow the process and work on what we've laid out ahead of us. So I want to thank everybody for their time today. Thank you.
spk03: Thank you, Justin. And thank you, Nancy and Nirup, for participating today. I would like to remind everyone that this webcast is available on the Schwoz website. Once again, thank you for joining the Schwoz first quarter webcast. Have a good day, everyone.
spk01: Thank you. Ladies and gentlemen, this does indeed conclude your conference call. You may now disconnect your lines.
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