Unrivaled Brands Inc

Greetings and welcome to the Unrivaled Brands 2021 Third Quarter Financial Results. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you would like to register for a question, please press the 1 followed by the 4 on your telephone. If you require operator assistance at any time, please press star 0. As a reminder, this conference is being recorded online. Monday, November 15, 2021. It is now my pleasure to turn the conference over to Jason Assad, Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon and welcome to Unrivaled Brands' third quarter 2021 financial results conference call. With us today are Unrivaled's Chief Executive Officer, Frank Nuttall, and Chief Financial Officer, Jeff Batliner. Before I turn the call over to management, please remember that this conference call contains forward-looking statements as defined within Section 27A of the Securities Act of 1933 as amended and Section 21E of the Security Exchange Act of 1934 as amended. These forward-looking statements and terms such as anticipate, expect, intend, may, will, should, or other comparable terms involve risks and uncertainties because they relate to events and depend on circumstances that will occur in the future. These statements include statements regarding the intent, belief, or current expectations of Unrivaled and members of its management, as well as assumptions on which the statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, including those described in Unrivaled's periodic reports filed with the SEC, and that actual results may differ materially from those contemplated by such forward-looking statements. Except as required by federal securities law, the company undertakes no obligation to to update or revise forward-looking statements to reflect change conditions. Finally, this conference call is being webcast. The webcast link is available in the investor relations section of our website at www.unrivaledbrands.com. With that, it's now my pleasure to turn the call over to Unrivaled Brands CEO, Frank Nuttall. Frank?

Thanks, Jason, and thank you, everyone, for joining us this afternoon to discuss Unrivaled Brands' third quarter operating results. As we have in the past, I'll provide an update on our three primary initiatives, and Jeff will provide details on our Q3 operating results. I'll start with a high-level review of our operations, proceed with updates on our asset sales and balance sheet, and finish with a summary of our strategic initiatives. To start with, I'm pleased to report the operating results for our first quarter after merging with Umbrella. which represents the first step towards our plan to become the dominant West Coast MSO, or multi-state operator. During the third quarter, we recorded 23.4 million in revenues, up 274% from 6.3 million in revenues during the second quarter of this year, and up 668% from 3.1 million in revenues during the third quarter of 2020. For the legacy TerraTech operations, which provides insight into the operations not including the effects of the umbrella merger, revenue for the third quarter was $6.3 million, up 1% over the second quarter of this year, and up 107% over the third quarter of 2020. While Jeff will provide more details shortly, I would also like to note that our non-GAAP loss, which reflects the elimination of non-cash or non-recurring items was down considerably from a year ago and down marginally from the second quarter of 2021. For the third quarter of 2021, our non-GAAP loss was 0.9 million, down 93% from the third quarter of 2020 when we had a non-GAAP loss of 12.7 million. This puts us on track for what we expect to be EBITDA positive in Q1 2022 as previously anticipated. A full non-GAAP reconciliation can be found in our 10Q filings. As a summary of our current operations, our business is comprised of five parts. Retail, which includes dispensaries and direct-to-consumer delivery, distribution, brands, cultivation, and bulk. While all these pieces are vital to the operation of the business, we believe the long-term value creation will come through the development of product and dispensary brands, both of which will be our primary areas of focus going forward. As part of our product brand development, we are supporting and growing our brands through access to dispensary shelves and delivery menus. Many iconic brands have been created in California, and as the largest market in the country, the brand winners in this state will, we believe, capture meaningful and broad customer appreciation over time. As part of providing as wide a consumer base for our brands as possible, We place our brands in our own dispensaries and our own delivery menus. As part of this, it's worthwhile noting that neither People's nor Silver Streak carried any of our brands prior to the acquisitions, which opened the door for strong cross-selling opportunities. By loading our brands into the People's dispensaries and Silver Streak delivery network, we expect to capture a greater portion of the margin available to us, generating greater cash flows. Also of significant importance to brand development is providing our brands into our distribution network. California and Oregon are fragmented markets, and having our own distribution, while a lower margin business than either product brands or dispensaries, provides us with control of the sales process, allowing greater influence over shelf placement, quicker response time for our dispensary partners, and a better understanding of our customers' needs. As a frame of reference, we sold into approximately 440 dispensaries in California over the last 90 days and approximately 330 dispensaries in Oregon over the last 90 days. One additional attribute of our distribution operation is that we distribute complementary third-party brands, which fill out our product portfolio and also allow us to amortize our distribution network across a larger revenue base. Notwithstanding the operational benefits we experience, which I previously discussed this afternoon, from distributing our own brands, our market analysis suggests we do so at a lower cost than if we outsource this service. With that said, there are always areas for further improvement. As part of the full integration of Umbrella, we closely reviewed each business vertical and determined that we needed to take a reserve against older inventory in the approximate amount of $4 million. This one-time integration event has the effect of reducing our gross and operating profits and margins for the quarter. We believe this change addresses old product in the bulk and distribution components of the business, and that this will allow us to more effectively manage distribution and bulk inventory against our sales levels going forward. With that said, the bulk market is one of the more challenging components of the industry, and we're keeping a close eye on wholesale pricing and volume. Turning to asset sales and balance sheet items, of note, as a reminder, we have a note receivable and puttable equity in the approximate amount of $12.5 million associated with the sale of two dispensaries in Nevada in early 2020. The note receivable in the amount of $4.2 million is due in late December of this year, and the puttable equity in the amount of $8.3 million can be sold if the buyer starts trading were redeemed by the buyer in numerous tranches starting in January 2022. In addition, we exercised our option to purchase approximately 20% of Edible Gardens for the sum of $2. We received this option as part of the sale of Edible Gardens in March 2020, and with Edible Gardens filing of an S-1 to go public, we felt now was an appropriate time to exercise our option. While there are many variables in terms of understanding the value and the outcome of that filing, we believe there could be additional upside to unrivaled brands if we're able to monetize that investment. As per my comments last quarter, we remain committed to building our footprint on the West Coast, both organically and strategically. Addressing the latter item first, as previously mentioned or reported, we closed on the merger with Umbrella on July 1st, and the acquisition of Silver Street on October 1st, and entered into a definitive agreement to acquire People's. Following the close of Silver Streak about six weeks ago, we have made substantial progress in the operational integration of the company. As part of this, we have augmented their existing technology stack, updated the branding and website, and launched an electronic payment platform. In addition, we are developing a phone-based ordering app that we expect to roll out in 30 to 45 days. On top of the operational integration improvements, we have expanded the SilverStreet platform to our San Leandro facility in early November, sharing customer database facilities and inventory. We're in the process of launching our marketing campaign, and while it is early yet, we believe that this could add meaningfully to our San Leandro revenues. We're strong believers in marrying retail and delivery, and believe there are good synergies between the two, allowing for greater amortization of facilities and inventory and greater margin than either would have on a standalone basis. As part of this, we'll continue to roll out the delivery platform to additional dispensary locations in the future. The People's Acquisition continues to move towards closing. We had hoped and expected to have it completed by now, but regulatory approvals and the normal process has taken a little longer than expected. With that said, we're substantially through the process and expect it to be completed soon. In the meantime, we're operating the existing dispensary under a management services agreement, under which we have full control of the operations and receive all the financial benefits of the dispensary sales. In addition, there are some operational improvements we expect to roll out in the coming months. Including in this is the launch of a customer loyalty program, which has been very effective for us in our other dispensaries, launch of electronic payment modalities, as the dispensary is currently cash only, and the addition of our brands in the shelves in each of the three announced people's dispensaries. The first of which is in Orange County, which is opened and operating as previously discussed. With respect to the other two announced dispensaries pursuant to the acquisition, Downtown LA and Riverside, we're making good progress on the openings. As previously indicated, we expect to have both dispensaries open in Q1 2022. I'm happy to report the opening of the downtown LA location will come in ahead of schedule, and we now expect a soft opening in about three weeks and a grand opening about a week or two thereafter. We have developed a robust marketing plan encompassing multiple different online and on-the-ground channels and believe that our dispensary, one of the few with dedicated parking in downtown LA, will grow nicely in the coming months. With respect to the Riverside dispensary, we remain on target for an opening in Q1 2022. It has prominent highway frontage on the 215 with easy highway access and believe that the Riverside dispensary will also be a strong performer once it is open. We have no specific update with respect to the other two license applications that are part of the people's acquisition in designated locations in Southern California. Other than to say the process is moving forward. We will provide updates in these two locations when further information becomes available. With respect to our organic growth initiative, we formally opened our Hagenberger cultivation facility in Oakland and we have plants in three of the four rooms at this time. We expect the first harvest will be in early December and the strains have been carefully selected for our Korova brand. As previously stated, the Hagenberger facility is approximately twice the size of our existing cultivation facility in Oakland. and we expect it will provide high-quality, regular source of flour to drive the growth in the Korova brand. I would also like to give an update on our Dyer Road location, which is the other unfinished facility we have discussed in the past. Following the acquisition of Peoples, market developments, particularly for flour and other strategic discussions we are having, we are evaluating how it fits into our overall growth plan. Of particular consideration, we are reviewing whether or not the capital to open the facility might be better spent on other strategic initiatives. While we have not completed our analysis, we expect to have further updates in the coming weeks and will provide such information when available. Overall, we are pleased with the progress we have made, but we are never satisfied. While we have a great deal more work to achieve, our goal of being the dominant West Coast and there are certainly operational, merchandising, and other improvements we are reviewing, we are pleased that we consider very meaningful and material strides during the last 10 months. With the expanded footprint, both that which is already open and that which is opening in the coming months, we'd like to take this opportunity to affirm our revenue guidance for 2022 in excess of $130 million for the year, notwithstanding any new relationships, partnerships, or acquisitions we may make. Further, following the transformational mergers and acquisitions we have entered into this year, we intend to become more focused on operating margins and a return on invested dollar for both organic projects as well as acquisitions. Finally, I'd like to thank every member of the Unrivaled team for making this happen. Their incredible diligence, dedication, and hard work is very valuable to us in managing the business. It has truly been a team effort and one for which I am very proud. That concludes my prepared remarks. With that, I would like to now turn the call over to Jeff, our CFO, for a detailed look of our third quarter 2021 financial results. Jeff?