Medicine Man Tech Inc

Good afternoon. My name is Joe and I will be your conference operator today. At this time, I would like to welcome everyone to Schwoz's second quarter 2024 conference call. All lines have been placed on mute to prevent any background noise. And if at any time you need assistance, please signal conference operator by pressing the star key followed by zero. Following their prepared remarks, management will take questions submitted via the web link found on Schwoz's investor relations website and in the earnings press release. Please also note that today's conference call is being recorded. I would now like to hand the conference over to the company's external head of investor relations, Sean Manceri, with Elevate IR. Sir, please go ahead.

Thank you. Good afternoon, everyone, and welcome to Schwoz's second quarter 2024 earnings conference call. Joining me on the call are Forrest Hoffmaster, Interim Chief Executive Officer and Chief Financial Officer, and Justin Dye, Chairman of the Board. The company will begin with prepared remarks, and then we will open the call for Q&A. I would 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 statements regarding legislation and regulation, Schwoz's future results and financial position, and Schwoz's business strategy and plans for future operations. Such forward-looking statements may be preceded by the words plan, will, may, continue, anticipate, become, develop, expect, believe, project, could, or similar expressions as they relate to Schwoz. 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 annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 27, 2024. In addition, other information is more fully described in Schwoz's public filings with the U.S. Securities and Exchange Commission, which can be reviewed at www.sec.gov or on cedar.com 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 measures discussed during the call and with the most directly comparable gap measure can be found in Schwoz's earnings press release made available before this call and available on Schwoz's investor relations website. I'll now turn the call over to the company's chairman of the board, Justin Dye, for opening remarks. Justin.

Thank you, Sean, and good afternoon, everyone. Thank you for joining us to discuss our financial and operating results for the second quarter of 2024. As we assess the U.S. cannabis landscape, Schwoz is actively gaining market share in two of its most competitive markets. Our focus has always been and will remain centered on understanding and adapting to our consumers' dynamic needs and preferences. This principle has distinguished Schwoz as the consumer's retail of choice in both Colorado and New Mexico. As we consistently delivered on our brand promise of offering the best assortment of high quality products with exceptional customer service. In Colorado, there were 677 active adult use licenses as of quarter end, underscoring the importance of delivering a unique and differentiated customer experience focused on driving customer acquisition and retention. Our hard work is paying off. As we've outperformed the Colorado market on both a year-over-year and quarter-over-quarter basis, these results are a testament to the strength of our operating playbook and team. And we're focused on continuing to thrive and win in these challenging markets. In New Mexico, the increase in new licenses continued to exceed the growth of state cannabis sales in the second quarter. The state's regulatory body has reinforced its commitment to license enforcement by increasing the number of inspectors and accelerating compliance checks. These actions plus the per unit economics for many of the state's operators led to 71 closures and a sequential reduction in net new store openings in quarter two. We anticipate this trend to continue, eventually shifting net new store growth from positive to negative in the latter half of the year. Like Colorado, we believe we have the right market strategy, operating playbook, and team to win in this market. Before handing it over to Forrest, I'd like to convey my appreciation to him and the entire Schwoz team for their wavering dedication. Despite the many hurdles we've faced, their commitment to excellence has positioned Schwoz for long-term success. I'm confident that we have the right team in place to execute on our growth and profitability objectives ahead. Forrest, over to you. Thanks, Justin.

Before diving into quarter two results, I want to extend my gratitude to the entire Schwoz team for their commitment and exceptional performance over the past year. Their relentless efforts have built a solid foundation for our business in two of the most competitive retail markets in the country. I'm proud of what we've achieved together and believe that our continued commitment to our customers and the health of our business will enable us to drive long-term sustainable growth and profitability. We made solid progress on our growth and optimization initiatives in the second quarter while generating sequential quarterly growth across all financial metrics. To further advance our retail strategy, we are deepening our understanding of consumer behavior and the competitive landscape in each of our unique operating markets. enabling us to sharpen our pricing and promotional strategy, enhance the in-store experience, improve our assortment and in-stock positions, and refine our loyalty offerings. These efforts drove increased store traffic and market share expansion in both Colorado and New Mexico. In our wholesale business, we generated our second consecutive period of quarter-over-quarter growth with improved penetration and catalog expansion in both states, while improving wholesale margins. Moving into our markets, starting with Colorado. To drive growth in the competitive Colorado environment, we continue to elevate the retail experience and service with more personalized and impactful loyalty offerings. As a result, we generated 6% growth in a market that declined 11% during the same period. We will continue to drive improvements in customer acquisition, retention, and loyalty responsiveness to further increase our share in the state. Our wholesale penetration in Colorado increased to 34% of total doors in the state. For perspective, wholesale penetration is up from 21% in the beginning of January and 30% at the end of March, demonstrating our team's consistent sales efforts to expand our wholesale reach quarter after quarter. As part of our restructuring initiative, we closed three underperforming dispensaries in Colorado that no longer met our high margin threshold. We also closed our Colorado DC and shuttered our non-plant touching wholesale operation, the Big Tomato, to prioritize our efforts on core operations. Additionally, we streamlined our corporate office support structure to strengthen our retail forward strategy. We will continue to evaluate the performance of our assets to best position us for sustainable growth and profitability over the long term. Switching gears to New Mexico. The state's cannabis sales were up 7% across the store base. It was 20% higher year over year in quarter two. Our consistent efforts to optimize our pricing and promotional strategy, expand assortment in all categories with high-quality flour at all tiers, and deliver an enhanced customer experience are gaining momentum. In the second quarter, we grew revenue 9% sequentially compared to the state's 2%. increasing our share in the state and demonstrating the effectiveness of our operating playbook and team's ability to compete in challenging environments. We are seeing sequential improvements in store traffic and expect this trend to continue in the back half of the year. From a wholesale standpoint, in quarter two, we grew penetration to 35% of total doors in the state, up from 19% at the beginning of the year and 30% at the end of quarter one. We also saw wholesale revenue increase 16% over quarter one, driven by greater penetration and new account growth. In our wholesale catalog, we expanded our offerings with the launch of Lowell Farms pre-rolls in April. Additionally, our customer favorite gummies brand, Juana, generated 28% sequential unit growth. We're pleased with the momentum we're gaining with this brand and look forward to expanding our catalog further in the state. In June, we announced the grand opening of a medical and recreational dispensary under the Our Greenleaf banner in Bernalillo, New Mexico. With this new store, we now have 35 dispensaries across the state between our two banners, Everest and Our Greenleaf. We look forward to delivering on our brand promise of offering a wide assortment of high-quality products with exceptional customer service as we serve both the patients and customers of Bernalillo. On the regulatory front, we are pleased with the New Mexico Cannabis Control Division's increased enforcement efforts against the illicit market. In quarter two, the state saw nine net new store openings compared to 16 in the first quarter of 2024, with 71 closures in the second quarter of 2024. As Justin mentioned, we anticipate this trend will continue, eventually flipping net new stores from positive to negative in the back half of the year. Turning to cultivation and manufacturing, we made solid progress on optimizing our cultivation and manufacturing operations during the quarter. As we've mentioned before, we are leveraging real-time sales and inventory demand data from our retail stores and wholesale team to more closely align our manufacturing and grow operations with consumer demand. To improve output, we implemented new LED lights in our Brow indoor grow facility. which we anticipate will generate a double-digit improvement in yield. From a corporate standpoint, we recently brought in a new VP of cultivation to support our facility leaders and improve consistency across cultivation operations, uncover synergy opportunities through operational best practices, and support SKU and facility rationalization for improved margins. As many of you are aware, in July, we announced that our common stock would be transitioned to the OTC expert market due to our delayed 10Q filing for Q1 2024. This delay stems from work required to become compliant with the SEC as a result of their order against our previous auditor, BF Borgers. Our decision to dismiss BF Borgers prior to the SEC order was a strategic move to bolster our accounting rigor, which proved to be the right decision given the SEC's subsequent charges. We are working diligently with our new auditing partner, Baker Tilly, to complete the re-audit process as quickly and efficiently as possible. We are also pursuing recoveries for all fees related to BF Borgers. We also announced a debt restructuring in July as we extended the maturities for our original $15 million Altmore loan agreement and $17 million rental Greenleaf & Associates promissory note from February to November 2025, in a step toward addressing future debt obligations. This restructuring marks a pivotal accomplishment for us as it provides us with the financial flexibility to execute on our strategic growth initiatives. We appreciate our lenders for their support and confidence in our strategic vision. Let's quickly touch on our quarter to 2024 financial results. Total revenue in quarter two increased 2% to $43.2 million, driven primarily by the growth from new stores, partially offset by lower wholesale revenue on unit pricing and retail pricing pressure, along with the proliferation of new licenses in New Mexico. Gross profit for the quarter was $19 million, or 44% of total revenue, compared to $23 million, or 54% of total revenue last year. The decrease in gross margin was primarily due to the aforementioned pricing pressure and greater mix of third-party purchasing in New Mexico to expand our offerings in the state, as well as higher medical sales mix in Colorado. Operating expenses for the second quarter of 2024 were $21.8 million compared to $18.1 million in the year-ago period. with the increase primarily driven by four-wall SG&A costs associated with the five additional stores in Colorado and New Mexico. Additionally, Quarter 2 was impacted by non-recurring professional service fees related to prior period work pay-per-review required to comply with the SEC's order against BF Borgers. Loss from operations in Quarter 2, 2024, was $2.7 million compared to income from operations of $5 million last year. Adjusted EBITDA was $9 million or 21% of revenue compared to $13.8 million or 33% of revenue last year, with a decrease primarily driven by lower gross margin and higher operating expenses. As of June 30, 2024, cash and cash equivalents were $12.3 million. Total debt stood at $163.4 million as of June 30, 2024. Looking ahead, we will continue to refine our retail strategy while further driving operating efficiencies across our retail cultivation and manufacturing assets. Over the past year, our consistent efforts to optimize our operations have established a solid foundation, positioning us for continued growth and stronger levels of profitability in the second half of 2024. That concludes our prepared remarks. I'd like to now pass it on to Sean, who will open the call for Q&A.

Thank you, Justin and Forrest, and thank you, everyone, for participating in the conference call. Before opening the call for live Q&A, we're going to address questions that have come in via email over the past couple of weeks and even the past hour since issuing our results. So to kick things off, Forrest, Justin, when do you anticipate filing your first and second quarter 10Qs and uplisting from the OTC Expert Market to the OTCQX? And ultimately, what are you doing to improve the company's share price?

Yeah, I'll take that one. Thank you, Sean. You know, as we mentioned on the call, we're working really hard with our new auditing firm, Baker Tilly, to complete the re-review process. Unfortunately, that was out of our control that that's required. Having said that, we're working expeditiously to get it done. This includes re-auditing our fiscal year 2023 financial statements, and re-reviewing the closing of our 2022 balance sheet before completing the Q1 and Q2 audits. As of today, we've not uncovered any material misstatements in working with a heightened sense of urgency to ensure we can file in the coming months. Once we submit the delayed filings or are no longer in delinquency with the OTC, we will complete the application process to uplist back to the OTC QX, which is expected to take about a month from the date of the application. Now having said that, if we were on the NASDAQ or the New York Stock Exchange, we would have had an additional six months waiver to be able to do this. Unfortunately, with the OTC rules tied to the SEC, we were not allowed to do that, but we're doing the best We can, and the team's making a lot of progress. Regarding the share price, look, no one's more displeased with our share price than myself. We are Schwoz's largest shareholder at Dye Capital, and I believe the recent volatility of pricing pressure is a function of forced selling due to the circumstances with our prior auditor that was entirely out of our control. There are also impeding factors such as illiquidity of the OTC expert market in getting a real-time price that has adversely affected the share price. The good news is it's temporary. We're actively working to complete our audit and get relisted to the OTC QX, which we believe will drive liquidity and I think will have an upward movement for the stock as we just frankly have more liquidity. Further, once we're back on the main exchange, we do expect to ramp up our investor relations. Again, we'll be in a position to do that, which we haven't been the last few months. We plan on participating in a multiple of investor conferences later this year, along with getting back on the road to meet with prospective investors across the country via non-deal roadshows. We have an exceptional company. It's well run. really competitive markets. We're coming out of that. We're back on track, improving our fundamentals and the value of the business that it'll show up in our financial performance. So we're looking forward to meeting with many of you, our current, past, and future investors in the months to come. And we're certainly going to be out there talking about the company. So I look forward to that.

Thanks, Justin. And could either of you provide additional color on the restructuring strategy? Have all phases of the initiative been completed, or should we anticipate further optimization efforts in the future?

Sean, yeah, I can go ahead and take that one. Yeah, first of all, the restructuring efforts span the whole company, and we have not yet completed all phases, and that I think we should just plan to continue to have this part of an ongoing effort of ours as we narrow our attention on becoming the leading cannabis retailer in Colorado and New Mexico. This particular pass was more of a reflection of what we needed to do in quarter one, quarter two, just as we look forward just to move more efficiently forward. In retail operations, we talked about this in the script and just evaluated a handful of our stores in Colorado and New Mexico to ensure each one meets our internal expectations. We ended up closing three of those during quarter two, and as mentioned, we'll continue to evaluate our retail assets on a quarterly basis moving forward more frequently. For cultivation and manufacturing, this is where I see success. probably our largest opportunity, especially in New Mexico, just as we continue to get the synergies from the acquisitions that we made last year. But for this particular area, we hired new leadership to bring cohesion to the internal supply chain in general. We are bringing greater alignment to retail, wholesale, and consumer demand so we don't deal with so much of the overproduction issues you hear about across the industry and making sure that we're growing and producing the right things in the right tier at the right time that the customer is asking us for. So that'll enable us to further right-size supply chain, optimize assets, consolidate assets, skew rationalization, grow the right stuff, and then just more productively utilize working capital. In wholesale operations in quarter two, we turned our full attention to private label development, third-party licensing agreements. You heard a little bit about some of the success we saw in our penetration in both states. largely just a look at the catalog skews that we were making and growing and purchasing in. And so we ended up making the decision to close Big Tomato, which was an original asset. It's non-core, not plant touching, mostly nutrients and grow supplies to the end consumer. So we closed that operation based out of Denver. And then to simplify logistics and free up working capital rather than holding, tying it up in inventory, we ended up closing our Colorado distribution center in April. And in New Mexico, we're working to improve the capacity load on that DC. It's a more immature market, but we're starting to work with vendors there to help relieve some of the capacity that we have there and create a more efficient logistics chain. As part of these changes, we took a hard look at where we were from a corporate office standpoint and streamlined office support structure just to focus our attention and full resources on the retail forward strategy. So our efforts to date were a big part of the gross margin. I think we improved over 300 basis points on EBITDA, 23% increase from quarter one. Right now we're looking at annualized savings of these changes that I just walked through of roughly $7 million. And we still have a few levers to pull to drive further efficiencies, as I mentioned.

Great.

And could either of you expand on the three store closures in Colorado? What was the impact on Colorado retail revenue in Q2?

Yeah, it's close to about a half a million dollars in quarter two. I do want to point out, though, that even though we pulled it out, we still outpaced the market with 4% sequential growth. with the closings of those stores. I think I mentioned at the early part of the call, even though the market dropped 11% year over year, our share in the state grew, and that is with three fewer stores. Again, just looking at how those operations met our profitability measures, capital return measures, and ended up making the hard decision to close them.

Understood. And could you walk us through the gross margin impact that led to the year-over-year decline?

Yeah, of course. So the big piece, and we've talked about this over the last couple quarters, I would say roughly 60% of the basis point decline year-over-year in the quarter was largely due to retail pricing in New Mexico and in Colorado. That's really was our response to just making sure we stayed ahead or stayed competitive within the market, continued to drive traffic into the stores. And then at the same time with those pricing investments, making sure that we were expanding our assortment in all tiers so that we gave customers more options in premium all the way down to the value tier. So again, mostly most of that decline was retail pricing we also had as part of that assortment we grew a third-party mix and we also because of the akimbo acquisition we grew from around one and a half medical sales mix in quarter to 23 to a little north of six percent and that's about half the margin rate of our rec margins and then we added in the cost of the DC in New Mexico

Great.

And could you maybe give us an update on your current wholesale offerings and future product roadmap?

Yes, absolutely. I'm really proud of the wholesale team. Hitting the ground hard in New Mexico. We saw penetration in both states increase to 34%. in Colorado and 35% in New Mexico. So we're well on our way towards our goal. And that's in part due to new accounts, in part due to catalog expansion. As I mentioned, as part of that early stage restructuring, we took a hard look at our catalogs and looked at the open opportunities within each of the categories where we could introduce either private label products or third party products. So in New Mexico, we saw healthy growth in the market largely due to the Lowell Farms pre-roll introduction and then the growth in the wanton category. So really excited about what we're seeing there. And then in wholesale Colorado, just pretty steady business year over year, decline on the bulk side, largely due to pricing. But otherwise, moving ahead in close to 200, over 200 stores in New Mexico, continuing to pursue our catalog growth. We do have some new items coming out in the third quarter, but rather than get ahead of myself, I think we're going to save the third quarter to talk a little bit about those results and are excited about what the team is delivering there. So more to come there.

Okay. And this next one is probably geared for Justin. Can you expand on the go-forward plan to drive growth and overall value creation? Sure.

Yeah, of course. I'm happy to discuss that. This is, frankly, what we're spending most of our time working on is driving shareholder value, driving more units, driving market share, and taking care of the customers. We framed it. We have basically six key points. Within the organization, we're certainly driving value through the supply chain, things such as, so number one would be supply chain, so rationalizing vertical integration, bringing more of that margin efficiency in-house, implementing energy efficient LED lights at our brow facilities, an example, optimizing our strain portfolio to maximize yields and demand, consumer demand, facility rationalization, and also developing wholesale brands that we can sell to other retailers and looking at new licensing agreements with other brands within these states that have been very beneficial to us. So there's a comprehensive plan and an execution strategy against that. Number two is really looking at retail and merchandising. We've identified and started several efforts designed to drive further growth First, we're deeply focused on consumer needs, really understanding the form functions of the different products, looking at larger sizes, looking at what the needs are both in Colorado and New Mexico. We're looking at pricing and certainly looking at key value item pricing to be competitive and to drive loyalty with our customers. looking at product assortment as we continue to do, look at the products that are selling best, look at new products, discontinue those products that are not selling, and that's a continuous process that's a system of category management that the team executes against, and looking at promotions, working with our vendors and supplier partners to contribute and to promote to drive revenue units and gross margin dollars for both of our companies. And then if you look at number three, we're spending an inordinate amount of time looking at our loyalty program and implementing new benefits. And we're seeing some benefit associated with doing that, getting very close to our consumers so they want to shop at our brands principally. Within the four walls of a store, number four, we've implemented comprehensive bud tender trainings. We have one voice to the customer. that is well-educated, that could really sort through the needs, wants, requirements of our consumers and can lead them to not only getting what they want, but also trying new products and creating a bit of a treasure hunt as we're finding new things to bring to the stores and bringing some excitement. So a lot around product knowledge and how to take care of customers and treating them best in market with our service. Number five, we've looked at and implemented a new community marketing program, which this sector is really challenged in its ability to market and advertise. So we've really kind of, I think, cracked the code with regards to getting into these local neighborhoods, these local MSAs and cities and really working neighborhood by neighborhood to to let folks know the quality of our products, to let them know the quality of the service, as well as being able to really partner with them to drive community involvement and do great things for the community and for our customers. So I'm really happy with that. I'm not going to get into all of it. We're testing and measuring a lot of different efforts in different markets, but it shows a lot of progress. And then number six is just kind of classic looking at our fleet of stores and looking at refresh programs, looking at our footprint, refreshing store aesthetics, bringing in new products, some new shelving, things that get product out in front of our shopper and really create excitement. So a number of those initiatives are on the list to execute. So the team's busy. So those six points, we're driving very hard with scorecards. to go move the needle and to create value.

Great. Very helpful, Justin. That concludes the review of the questions that came in via email. Operator, over to you for live Q&A.

Thank you.

We will now begin the live question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. And to remove a question, please press star then two. At this time, we will take our first question, which will come from Russell Stanley with Beacon Securities.

Please go ahead. Russ, if you're on, we can't hear you. Sorry, can you hear me now?

We can. Got you now. Hi, Russ.

Okay, sorry about that, Justin. With respect to your point number six there around the retail footprint and refreshing, I'm just wondering, given you've closed those three sites in Colorado, wondering how you feel about the retail footprint in both markets now. Might we see additional closures, or are you essentially happy with the team that you have in terms of the the sites and how they're operating.

You know, Forrest and I talk quite frequently about that. When you look at the network of stores, we feel really good with our position right now. We have a quarterly process where we evaluate every store based on growth, profitability, what we need to be doing to optimize those stores. That's a continuous evaluation process that will continue. We don't see any immediate closures in the future. We like what we have. I do think we are going to continue to look for opportunities for new stores and new locations. As opportunities permit themselves in the real estate market, if we have an opportunity to move a store to a better location that's going to have better traffic, better street curb appeal, et cetera. We will continue to look at that, and we've got a team working on that.

Thanks for the color on that. Maybe if I could, just moving to wholesale, and congrats on the increase in penetration year-to-date. I'm wondering if you can talk to what your targets might be for penetration looking, I don't know, six months or a year out, where you'd like to be in each market. Thank you.

Hey, Russ. Yeah, good question. And right now our internal target is 40%. My guess is we'll see ourselves probably at the end of Q3 wanting to touch that up and increase it a bit just to push the team a little bit. Again, seeing good growth in both states. more accelerated growth in New Mexico, but I think with the new product offerings that we have coming online in both private label catalog as well as third-party catalog with some exclusive licensing deals, we feel pretty optimistic or very optimistic we can hit those targets.

Great. Maybe one last question for me before I hop into Q. Sticking with wholesale, just on the number of doors, great growth there. I'm wondering how you're thinking or prioritizing share of shelf at the same time. Tough to go in both directions at once, but sounds like the global launch in New Mexico, for example, has gone well. And I'm wondering how much emphasis you're putting on getting additional product onto existing stores over grabbing new beachheads, new doors. Thanks.

Yeah, I would say without specificity on the shelf percentage, we're looking for more shelf space. particularly just given some of the churn that we're seeing in New Mexico. So our goal is to create strong working relationships with the accounts that we have and to expand from there. And just given the life cycle of products and customer preference shifts, that's where our focus is.

That's great. Thanks for the color. I'll hop back in the queue. Okay. And our next question.

Can I follow up on that? If I can still follow up on that. I think it is worth mentioning, too, one of the things we're seeing in terms of shelf is, I'd be remiss not talking a little bit about just how we're looking at the catalog and making sure that within the catalog, if we see openings based on customer preferences or consumer psychographic or demographic in a particular market, that that gives us an opportunity to take advantage of the white space within the catalog. So I guess that speaks to your shelf market share, Russ, but we look at it from a catalog standpoint, where can we build a more robust catalog in all categories and across all tiers within that category. So anyway.

Our next question will come from Joe Gomes with Noble Capital. Please go ahead. Good afternoon. Thanks for taking my questions. Hey, Joe. Hey, Joe.

I wanted to start out on the distribution center and just trying to get a better feel or understanding of, you know, if we look back two years ago or so, that that was, you know, a great thing and it was going to lead to all kinds of synergies and lower costs and on and on and now we're probably not even two years after that was fully opened and now it's closed and just trying to get a little better understanding of that cycle of how we came to that determination so quickly.

Yeah, so I think the way I'm looking at this is in 120-day chunks, Joe, and where we are right now as well as where we are heading over the next 18, 24 months and seeing where the market's going and what our opportunities are. So right now, I think you remember where we were in quarter three, quarter four after the acquisition in New Mexico, and really all of a sudden that fire got pretty hot over there. We really needed to tend to it. making sure that we put our resources, our time and energy on fighting that front. And I think we've done a very good job of strengthening our position there in the market, creating a strong foundation there, not just through pricing, but overall retail execution, tender training, all of those efforts. But it was very retail forward focus. And then making sure we were staying on top of the quarter three, quarter four, deep promotion and what I would consider now in hindsight pretty unreasonable pricing approaches that ultimately rebounded in Colorado. But it really became more of a retail forward focus in both of those states to make sure that we executed the core plan very effectively. And so we closed the DC. We still have that lease. We more or less, we'll call it mothballing or shuttering it. Right now, we have a very mature market in Colorado to help us with distribution and logistics. It just allowed us to free up resources, free up working capital, take that off the table in terms of an overall implementation. It does take considerable effort to open up a distribution center and streamline logistics and make sure your pick pack and speed to shelf and all those metrics are taken care of and making sure that we're also creating a good in-store staff and customer experience and And so at the moment, it made great sense, especially given our long-term ambitions that we have around retail growth in the state of Colorado. It was just more or less at that time, and in hindsight, definitely did make good sense for us to pay attention to the retail-facing part of the business.

Okay, thanks for that. And maybe you could touch a little bit on, you know, you've talked about, you know, you're sharpening the pricing. It obviously is not done in a vacuum. What kind of reaction have you seen from the competitors to your sharper pricing and promotion that you've been putting out there?

You know, I think in New Mexico, we continue to see price competitiveness, especially with a couple of different retailers. We... Nothing right now that's extraordinary. We're continuing to see retail pricing hold above $5 a gram. I think it was $5.84 last quarter. It's $5.33 this quarter. So the decline in overall pricing is still – it's softening a bit on flour. It's softening quite a bit on non-flour price per unit. So overall, the response has been modest. What we're doing, though, is New Mexico – and I've mentioned this on a couple of occasions – It's many markets within a state. We talk statewide metrics, but this is really, we see it as seven to 10 different microclimates with different psychographic and demographic behaviors that we have to respond to more precisely. So what we're looking at now is just how do we control pricing in each of those markets with greater precision across the categories, across the assortment. to make sure that we meet the needs of that consumer and also address the competitive environment in each of those unique markets.

Okay, great. And then one last one for me. I know you talked a lot about the retail base and obviously in the past, M&A has been a big avenue for you guys. Just wondering what kind of your thoughts are right now on the M&A market and what you're seeing out there?

So I'll probably hand this over to Justin a little bit more to speak at a high level since he's tracking the global markets. But right now our main focus, Joe, has been on ensuring that we're growing the core strength and health of the business, which we are, and we're going to see that continue to grow over the next couple quarters. Obviously, we're looking at opportunistic real estate on a one, two, three scale, not yet at a big scale, but certainly are open and looking and listening for more transformational opportunities down the road.

Joe, good question.

Let me kind of give you my perspective. I think the one thing that Forrest brought as he stepped in as CEO was He's had a very, very firm hand with regards to simplifying the business. We probably were trying to do too many things, and we're fighting a couple of different fronts between Colorado and New Mexico. He's brought real simplification of what it takes to drive customer satisfaction, what it's going to take to drive growth. and we're simplifying operations at store level and the supply chain. So he's brought really great discipline around simplifying what we're going to go do and being very clear around those goals. And then the opportunities around finding growth and new stores, et cetera, really you earn the right to do that. And I think he's done a very good job of being very forceful and clear around what do we have to go do before we're going to go put capital to work in new initiatives. And I think we're moving down that path. We've made some really good progress the first six months of the year, and we're certainly on an upward tilt. If you look at EBITDA this quarter versus last quarter, as we shared with people, we felt we're going to continue to build momentum, and he's doing that. So he and the team have done a nice job, and you're going to continue to see us operate what we have and continue to be a very, very challenging competitor in those markets with our retail assets and be very competitive there. And that's going to, I think, create opportunities for us to play some offense with some new store opportunities, whether it be a brand-new real estate deal or whether it's buying some, doing a small acquisition, tuck-in, or even something larger. So it's sort of principles, first things first.

Okay, great. Thanks for that. I'll get back in queue. Thanks, Joe. And our next question will come from Mohamed Hossain with Zoink. Please go ahead.

Hello. I'll be representing Pablo today. I have a question about your debt maturities. I know you extended some of your debt maturities from 2025, February to November 2025. Well, what are you up to and how are you applying to pay for them? Is additional refinancing an option or issuing equity?

Yeah, great question. The team, Forrest and the leadership team, did a really nice job of working with very close debt holders in the case of Altmore and our Greenleaf and being able to move those maturities back to the end of November 2025. We have... you know, we have a, we have a time in front of us as we evaluate how we're going to, and what we're working on to approach, you know, some of the debt that will be coming due later next year. We're actively working on that. And, you know, as we, as we move forward, we'll share, we'll share more about that. But, you know, operations are improving and, you know, I'm, I'm optimistic that we'll find some opportunities to refinance some of the debt, and certainly we're open to equity as well down the road. But we'll do what's best for the shareholder and the company.

Thank you. And I also have another question. You had some closure this year in Colorado, and in the past you talked about getting to 100 stores in Colorado. Have those plans changed?

I don't think those plans have changed. I think they certainly have slowed. I think they have slowed down. And the reason I think some of that is if you look at New Mexico, we've had a really challenging regulatory landscape there that we're working. We're working with the regulators. We're working with the state to try to make product safer, to make sure it's tested, making sure smoke shops are not selling illegal THC product to underage kids. There's still work to be done there. There's work to be done in Colorado. So, you know, I would tell you that the black market and the gray market has been very challenging in New Mexico. And we really got to get that tied up and tied down, which we're working on before we start adding a lot of new stores in New Mexico. But I certainly think that's still an opportunity. And I certainly think in Colorado, we still have the same opportunity. I think from a time perspective, I think our timeframe is elongated.

Thank you. And one more question. Can you update us on your stance on the 280E tax? Will we be asking for refunds for prior years like other companies have done and start making tax revisions without factoring 280E?

Yes, we are. We will plan to make a broader statement on that in quarter three. But, yeah, we are working on our amended returns, intend to have those filed. And we believe that the overall rescheduling impact of cash flow will be very beneficial to us, roughly $15 million of free cash flow. And then hoping to see positive news once we file our amended returns.

Thank you. That will be all. Great. Thanks, Bobby.

And with that, we will conclude the live Q&A portion on today's call. I'd like to turn the call back over to Justin Dye for any closing remarks.

Yeah, I want to thank all of the team members at Schwoz and the various retail banners and our wholesale business and all the store support people. They work extremely hard and we're grateful for that. I want to thank our board too. Our board is very engaged in in working through and supporting management and then Forrest and the management team. I think they're working smart, they're prioritizing what needs to be done to drive shareholder value and we're very pleased with where that's going. So I just want to thank our shareholders, help thank our vendors, partners that are very important to us, our shareholders. your patients we certainly have had challenges over the last nine months and the team you know you find a lot about teams as they go through adversity and i'm really proud of the team and what they're what they're doing how they're executing how they're moving the needle in revenue how they're improving margins how they're improving ebada how they're simplifying the business to uh position us to continue to grow market share in these two markets so We've been through a lot. I think we're seeing light at the end of the tunnel in a good way, and the team's going to keep battling, and we think there's still a great opportunity here to create value, and we think we've got a great company here. So more to come as we think about refinancing the balance sheet, and there will be more to come about taxes, and we look forward to reporting some of the real good progress that we're making this quarter and next quarter as well.

So appreciate everybody. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.