Making Marijuana Millionaires
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There is no specific comments on SHWZ but there was a comment about a stock that gained 61% , either way its really good perspectives on Cannabis stocks
The State of Cannabis Stocks w/ Merida Capital
Nice twitter thread on cannabis busts in Ny and Cali ,,,The synopsis is that growers are buying way less supplies and According to lots of people, some legal business in CA are definitely risking a lot to stay afloat and selling/letting product hit illicit mkt , which is eventually going to lead to Cali busts of legal operators that will benefit other operators who are playing by the rules.
Big difference from Cali is that it isn't grown here so much easier to clamp down once things start rolling. Also, bc it is travelling a fairly long way, price differential between legal/illicit mkt should be much smaller.
— Merida Capital Holdings (@MeridaCap) August 12, 2022
Im getting my Pelvis Chipped, SHWZ taking a beating out here this morning low of 1.28 ,,, Looks like a little improvement up to 1.40
SCHWAZZE.
Ive been reading the new investor deck and all the transcripts form the last week .
If it wasn't clear before it certainly is clear now that the number one goal is to become number one and a concentrated Market ,
Going deep …. What is it and why it matters
They are Creating Super Regional and Concentrated retail operations that will drive market share , The volume of this strategy will create Huge cost efficiencies , Pushing profits to the bottom line
Why the goal is to stay geographically focused ,Ultimately this allows us to become Diversified through growing the asset portfolio in Colorado and New Mexico.
The asset portfolio of course includes,
. Multi branded dispensaries , Soon-to-be 37 with your 4 additional upcoming in New Mexico
. Strong-house brands Resulting from our Super Regional structure ,
. Strong wholesale distribution center , Not only driving our house Brands but being a trusted partner for licensing agreements like Lowell Farms , The increased sales volume from the wholesale portion allows us to increased buying the creates Leverage getting us power to negotiate cost reductions with all the key outside suppliers
. 7 Growforth Gardens Facilities
. 3 Purple B's Manufacturing facilities
All this creates a strong retail experience coming from the Strong management team,
That measure’s and manage’s the meticulously collected data , The resulting analysis allows them to continuously improve their operations , and brand management , Once again creating a huge push in sales volume
In the end every one of these Processes are lowering the cost per unit in every element of the business. Once again this creates profit,
The real secret is this is not sexy and romantic like the big multi-state operators that everybody's been falling over themselves to buy. This is your down home meat and potatoes white picket fence stuff. It's clean and simple, In fact so simple seems like no one thought of it, till now.
I know how many others parrot this line ( Shwz a takeout target for the big bad MSO'S) . I say F that, I hope JD keeps up with his Strong Vision.
Yes , yes there will be many ups and downs but in 1 to 3 years were talking 5x , 3 to 5 short years this stock is a 10x.
NEW Seeking Alpha by Ted Wahler
https://seekingalpha.com/article/4535118-schwazze-medicine-man-tech-signs-of-success-unusual-cannabis-company
I first wrote about Schwazze (OTCQX:SHWZ) in April 2022 in an article titled Schwazze: The Best Cannabis Company You Never Heard Of. Despite that effort, and another in May titled Schwazze: An Unexpected Opportunity for Astute Cannabis Investors, Schwazze remains relatively unknown. Its market capitalization is only $61 million and daily volume is about 40,000 shares. The opportunity is still there and the company continues to execute a strategy that is decidedly different and may indeed prove to be one of the best opportunities in the cannabis universe today. In this article, we’ll discuss how Schwazze’s strategy is different, look at the recent Q2 2022 earnings report to see how they’re doing, and make recommendations for investors.
How is Schwazze different?
As a corporate entity, Schwazze has a relatively long history in the cannabis industry. They were incorporated in 2014 and went public in 2016 as Medicine Man Technologies (NOTE: Medicine Man will remain the legal name, but the company changed its corporate brand to Schwazze). The business was consulting, support and retail in Colorado. In 2020 Dye Capital arrived and began applying capital and operating expertise, transforming the company from $10.6 million in revenue in 2019 to a current annual run rate of $175 million.
Justin Dye, CEO of Schwazze and Chairman of Dye Capital, took a look at the nascent cannabis industry and saw a unique opportunity. Prior to 2020, Colorado law did not allow non-Colorado entities to engage in cannabis businesses, and the industry was ripe for the application of new capital and expertise. His plan was to bring those things into a fragmented industry and reap the benefits of consolidation. Schwazze could also maximize company performance in a state where individual company results vary widely. Dye is eminently qualified to make this strategy work. Among other successes, he led the effort to remake and rebuild Albertsons, the national supermarket chain. He turned a company that had become moribund, underperforming, and unfocused into a dynamic company that had a very successful IPO in 2020. He brought the company back to profitability and increased sales from $10 billion to $60 billion.
Acquisitions are key to Dye’s strategy. The goal is to buy businesses that have promising products or other attributes and realize their potential through superior management. At the same time, by consolidating small businesses, the business as a whole will benefit from the not inconsiderable advantages of scale. It’s a proven strategy for success, and Schwazze is well equipped to make it work.
In addition to Colorado, Schwazze operates in New Mexico, where adult use became legal in April. They are not opposed to expanding to other states, but they are not actively pursuing it. If they do, it will be in one that maintains the benefits of a regional
On the plus side, there was a healthy increase in revenue, primarily due to acquisitions and new adult uses in New Mexico. They also showed positive net income, higher EBITDA, gross profit and gross margin. The usefulness of net income and EPS is limited. They are distorted by the revaluation of the derivative liability related to investor notes in the amount of $29 million in the second quarter, $13.4 million in the first quarter and lesser amounts in other quarters. Cash flow, gross margin, and revenue are better measures for evaluation.
Other metrics changed in a negative direction. Cash flow turned negative, although Dye expects cash flow to be positive for the year. In Colorado, two-year comparative store sales increased 22.7%, but one-year comparisons fell -8.1%. In New Mexico, two-year compensation was up 37.3%, but one-year compensation was down -1.9%. Compensation numbers are helpful, but it’s too early to use them to evaluate the company. Two years ago, the business was just starting to grow and last year, comparisons were affected by COVID.
These results are similar to second-quarter reports from other cannabis companies, notably higher revenues, lower cash flow and reduced projections for the year. Everyone is affected by weak industry conditions such as weak wholesale prices, cost inflation, consumer weakness, supply chain constraints and more.
Schwazze is taking the latest weakness in the industry in stride, just like other cannabis companies. Like other companies, Schwazze will cut capex for the rest of the year, focusing on projects with the earliest and highest potential return on capital. As with other companies, the revenue guidance has been lowered, from a run rate of $220-260 million to $175-200 million. Still, the conference call had repeated references to “continuing to execute the plan,” acknowledging that changing and challenging conditions are part of the normal course of business.
No new debt or equity is needed to proceed with the 2022 acquisition strategy. As Dye said on the conference call,
Our current criteria for potential acquisitions include revenue growth or growth potential that exceeds the applicable state average EBITDA profitability with synergy opportunities, attractive acquisition prices that are beneficial to our shareholders, high-quality branded products and locations. attractive retailers.
Schwazze currently owns 23 of the 600 adult-use dispensaries in Colorado, so there’s plenty of track.
Schwazze Stock Price and Recommendations
Schwazze shares have declined from around $2 to $1 in the past 12 months, roughly in line with the industry. In the three days since the earnings report, the price is up 61% to $1.61, four times normal volume. It’s up 17% since my last report in May.
SHWZ data by YCharts
Dye’s strategy has proven successful many times and in many places. Acquire good businesses that generate profits and focus on synergies, operational excellence and brand development. Current industry conditions aside, there is evidence that this strategy is succeeding. Revenue, EBITDA and gross margin increased sequentially and year over year. Schwazze outperformed the industry in Colorado by 11% this quarter and six quarters in a row.
There are risks to an investment in Schwazze, as there are to any emerging growth company. If its performance falls short of expectations due to inadequate execution of its acquisition or operating strategy, or due to persistent general industry conditions, then the stock will suffer. Although they have qualified management, the viability of their strategy in this specific market is yet to be determined. In addition, they have a large amount of debt with high interest rates, up to 13% rates, which they will have to refinance in 2-3 years. Failure to refinance on favorable terms will hurt the company. On the other hand, favorable refinancing will strengthen the company.
Building a successful business with an incremental strategy like this takes time. If Schwazze continues business as usual, the share price will eventually reflect it. On this basis, I give Schwazze a BUY recommendation, but only for a risk tolerant investor. It is difficult to predict a target price, but a large number of warrants with an exercise price of $3.50 were issued in 2019.
An additional factor to consider is that the end of Schwazze will most likely be acquired by another company. Dye Capital is in the business of growing companies to sell at a profit, just as Justin Dye did with Albertsons. This is an incentive to work at a higher share price that many other cannabis companies do not have to the same degree.
summarizing
Schwazze offers a cannabis investing opportunity that differs from other companies in several ways. It is concentrated in a small number of states rather than spread across the country. It focuses on acquiring and maximizing the performance of existing businesses rather than building a business from scratch. Its leader has experience in successfully applying this strategy on a large scale. It has the (unspoken) goal of building a company for eventual sale at a profit, rather than being in cannabis forever.
This unusual combination of attributes may be attractive to investors who want to “cover more bases” in a new industry where paths to success have yet to be determined. Schwazze’s strategy is sound and time-tested, but the key is how well they can execute it. The key is superior management, which I think they possess. Although the strategy will take years to materialize, there is evidence in the latest quarterly report that they have what it takes. Considering the risks in a company like this, it is only appropriate for patient and risk tolerant people. These investors may want to start a partial position here and add funds in coming quarters and years as the company progresses.
From Meridia Cap
4 things that stonk jockeys must comprehend in cannabis Investing
1.Operational excellence/skill is not evenly distributed across publicly traded cos
JD just beat every ones ASS
2.Cap markets understand this even less so
No shit we got Noble and Veridian as the only 2 Analyzing us
3.Pubcos paying the most for visibility/IR have wasted tons of $$ past year
Justin spent close to nothing id imagine
4. Safe Banking not a panacea for crappy cos
Shwz doesnt need this
3 things that stonk jockeys must comprehend in cannabis-
— Merida Capital Holdings (@MeridaCap) August 11, 2022
1.Ops excellence/skill is not evenly distributed across pubcos
2.Cap mkts understanding even less so
3.Pubcos paying the most for visibility/IR have wasted tons of $$ past year
4. Safe Banking not a panacea for crappy cos
This is the same price target as Nobles prior target , but frankly SHWZ seems to be the only Co that reported any profit ?
Medicine Man Technologies (SHWZ) Gets a Buy from Noble Financial
In a report released today, Joe Gomes from Noble Financial maintained a Buy rating on Medicine Man Technologies (SHWZ - Research Report), with a price target of $4.00. The company's shares closed yesterday at $1.44. Gomes covers the Services sector, focusing on stocks such as RCI Hospitality Holdings, DLH Holdings, and V2X.
The word on The Street in general, suggests a Moderate Buy analyst consensus rating for Medicine Man Technologies with a $4.00 average price target.
Interesting perspective on SHWZ ,read the whole thread
When you have higher-margin east coast markets opening, it seems unnecessary and higher-risk to try and time the bottom in more mature states like CA/CO. There are great operators in these states, but I don’t see the fundamental dynamics suddenly changing. Happy to be wrong.
— Jesse Redmond (@jesseredmond) August 15, 2022
#3 Dispensary In Mass located in Cambridge... soon. Can't wait to open doors and be part of the community. In the meantime, come see us in Brockton & Taunton!
Soon Cambridge... soon. Can't wait to open doors and be part of the community. In the meantime, come see us in Brockton & Taunton!
— Commonwealth Alternative Care (@CommonwealthAlt) August 15, 2022
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Please consume responsibly. For use by adults 21 years of age or older. Keep out of reach of children. Nothing for sale on IG or FB. pic.twitter.com/FNMqqfYNdY
Shazamm , dont think were ever going back to under 1$
Although tilt Holdings generally is known for the C- cell technology Jupiter https://www.jupiterresearch.com/ there are four other companies who also have the right to distribute. I am not sure of the logistics but , but they certainly are the market leaders in the US.
CEO Gary Santo mentioned in the podcast that they have their own Laboratory and they believe they have come up with some of their own products there for not making them beholden to the current manufacturer or technology.
This separates tilt from competitors like Green Lane.
Tilt is a solid company and have shaped a unique vision , Listen to the podcast.
Unlike most other top growth stories in the space, growth for Schwazze is not dependent on the integration of any large assets or looming legislation catalyst that could ultimately be delayed through factors outside management’s control. Schwazze growth is about enhancing efficiencies in operation and gaining customers within existing markets.
Predict 57 million on Monday
What’s 55 million Q2 gonna do for @TILT_Holdings ??
— @PlugGreenHydrogen (@wind4me) August 12, 2022
What’s 60 million Q2 ??@Pennywise20183 has 57 million and he’s rarely wrong 😑
$2 by Sea #Massachusetts #PaulRevere of #Cannabis $TLLTF #Golf is calling pic.twitter.com/OhnmVtSg91
Virdian Capital price target $3.20
August 12, 2022: Schwazze reported Q2/22 revenues of $44M and $15M adjusted EBITDA. Revenues came in slightly below our $45M forecast while the adjusted EBITDA exceeded our $12M estimate on higher than anticipated gross margin particularly for the New Mexico business. The gross margin beat offset some higher OPEX spending in the quarter that appears to have been associated with acquisitions and will be non-recurring. We continue to anticipate declining OPEX spending for the remainder of the year as Schwazze management implements stringent discipline with acquired businesses in both Colorado and New Mexico.
With the earnings report, management provided an update to the previously discussed Q4/22 annualized run rate guidance for revenues and adjusted EBITDA. The company lowered expectations to reflect a Q4/22 run rate of between $175M and $200M in revenues and adjusted EBITDA in the range of $60M to $72M. This is below prior forecasts of $220M and $260M in revenues and adjusted EBITDA in the range of $70M to $82M. The cut to guidance is primarily attributed to worse than expected wholesale pricing and some slower than expected growth in Colorado as well as the push off of some new retail contributions in New Mexico which now look more likely to come online with full contribution in early 2023. Importantly, within the guidance cut, Schwazze is actually picking up margins at the mid-point (anticipated adjusted EBITDA margin going from ~32% to 35%) despite a likely gross margin hit on the challenged pricing environment and the company remains on track to be cash flow positive for the year net of acquisitions. The scaling margins and continued cash generation with existing assets in the face of market pressure reflects the ability of management to still take costs out from acquired businesses without sacrificing growth. We continue to expect this ability will bear fruit as the company gains further share in Colorado and New Mexico and as Schwazze eventually expands into additional markets. We are confident that market expansion is coming soon and continue to expect the most likely states for expansion will be Arizona, California, Nevada or Texas.
We update our model to reflect the guidance cut for Q4 while our 2023 forecast is largely unchanged. Our rating remains Buy and our price target $3.20 as we view Schwazze as one of the more underappreciated operators in the space and a worthy candidate for greater consideration.
Investment Highlights:
Q2 EBITDA Beat.
Q4 Run Rate Guidance Down on CO market Headwinds but Reflects Improved Margins on Cost Cuts.
Schwazze remains one of fastest revenue growers in US cannabis. Expect growth to continue while margin upside will come with scale and vertical integration.
Capitalized for additional M&A in the near term. Believe company a likely partner of choice for sellers and expect a takeout is in play.
Largest operator in Colorado and Early leader in New Mexico following state’s April rec market opening..
Stock remains undervalued despite favorable fundamentals.
Yesterday
Shares traded 78,274
Short Volume 61,194
% of Vol Shorte 78.18
Gotta cover
Can someone reply to this guy on twitter , he is not even recognizing SHWZ , sorry i dont have twitter anymore .
Colorado Cannabis Industry Experiences First-Ever Decline
— Todd Harrison (@todd_harrison) August 12, 2022
For the first time since 2014 when the state legalized recreational pot, Colorado cannabis sales are trending down.#Colorado 🇺🇸 #Cannabis 🌿https://t.co/HNH00Cng7U pic.twitter.com/lOusI5Je65
Transcript part 2 , Question-and-Answer Session
A - Joanne Jobin
Okay. So I'm going to open up the Q&A as I am going to be moderating. The first question is, and I'm going to swing this over to Justin, and I hope he's still on the line. It sounds like he had disappeared there. How many acquisitions since the new year or the acquisitions closed? Justin, are you there?
Justin Dye
I am here, Joe. Sorry, I had everybody on mute. My apologies.
Joanne Jobin
No worry.
Justin Dye
I wanted to thank everybody for their continued support and interest in Schwazze. It is a great industry, and we're having a little bit of challenges in our home market of Colorado, but the team is executing very, very well, and we continue to grow market share and execute. We're very bullish on Colorado, and we're bullish on New Mexico and continue to grow versus our plan.
So with that, we are #1 in Colorado and as we continue to acquire things. Since December of 2021, Schwazze has acquired or announced the planned acquisition of 16 cannabis dispensaries as well as 5 cultivation facilities and one manufacturing asset in Colorado and New Mexico. In the first quarter alone, we closed 14 dispensaries and 1 in the second quarter. We continue to have a good pipeline. However, as you can see by the past year, we're viewing the announcement and closing acquisitions takes time.
In our case, they all close literally within the same quarter. We continue to look forward to expanding both in Colorado and in New Mexico. And as I said, our pipeline is very healthy, and our investors should continue to expect us to announce acquisitions and grow organically with new stores, new products as well. I'll turn it back to you, Joe.
Joanne Jobin
Thank you, Justin. Okay. Next question, and I can hear you smiling from here, Justin. How do you keep outpacing the state results in Colorado, that 6 quarters in a row now, quite impressive considering the state is down once again.
Justin Dye
We actually outpaced the state by 11% this quarter, and that's really our dashboard to see. Are we growing versus the backdrop of our market. And proud to say the team did a nice job this quarter. We're going to continue to focus on that. We're executing a proven strategy of going deep, staying focused, acquiring very good businesses that are accretive and we're very diligent on getting the right synergies and launch of products. And that strategy works and it has worked over the last couple of years since we've been working with Schwazze.
The team is applying good old-fashioned execution and doing what they say they're going to do and proud of that, both on the manufacturing front, wholesale front and also on the retail front. And we'll continue to work on our playbook to -- we see a lot of upside and a lot of efficiencies that are available to us to make the business stronger and better. And we're looking forward to the rest of the year here. So I'll turn it back to you, Joe.
Joanne Jobin
Thank you, Justin. Nirup, here's one for you. Wholesale numbers continue to go down. Can you comment on this market?
Nirup Krishnamurthy
Thanks, Joanne. Yes, in Colorado, I think you're referring to Colorado. In Colorado, the wholesale market is distressed this year, primarily due to oversupply in cultivation last year and which resulted in an oversupply of distillate. Obviously, that has driven the market down in terms of pricing. And we are feeling the effects of that on the wholesale side. However, it has helped us on the retail side with margins.
So we believe that over a period of time here, this will settle down and the pricing will stabilize over the course of the next 12 to 18 months here. And we believe it will be back to a new normal. It may not be as high as it was before, but it will definitely be higher than what it is today. I mean clearly, what we are doing is focused on reducing our operating costs and the manufacturing and cultivation to ensure that we have the best quality products at the lowest price possible so that we can ride through this market here. Back to you, Joanne.
Joanne Jobin
Thank you, Nirup. Obviously, we've got a lot of questions on guidance this quarter as we revised our guidance downwards. Nancy, do you have any additional color on that question?
Nancy Huber
Yes. Thanks, Joanne. So we did restate our guidance down to $175 million to $200 million in revenue. We have seen the Colorado market be more challenging than we had originally anticipated for this period of time. So we adjusted for that. New Mexico is a little bit slower than we anticipated in the start, although as we've said, we've continued to see those numbers increase month-over-month. So we believe we'll hit our eventual target but whether we're there by Q4 or not, I think it will take maybe a little bit longer.
And then we are planning to open a number of stores down in New Mexico as well. And those probably just won't be up to the run rate we had anticipated in Q4. So that's part of what's adjusting our guidance downwards.
Joanne Jobin
Thank you, Nancy. And while I've got you here, let's talk about cash flow. It tends to be a big topic. Do you have enough cash? And are you generating cash?
Nancy Huber
Yes. So we expect to generate cash flow net of acquisitions this year. The first half has been negative, but we anticipate the second half will outpace that, and therefore, will be positive for the year. We're focused, as everybody is on making sure that we're rightsized in our SG&A area. And so we've been very judicious in investing in those areas as well as in capital, taking a good look at our capital strategy spending for the rest of the year, and we've cut back a little bit on that, but not significantly just enough in areas where we felt the return wouldn't be felt quite as quickly. So we've made some adjustments there. But the balance sheet is strong, and we have ample liquidity. And as I said, will drive positive cash flows net of acquisition for the year.
Joanne Jobin
Excellent. Thank you, Nancy. And I'm going to swing it back over to Justin. Justin, perhaps you can speak to inflation and how that is impacting sales or is expected to impact sales for the remainder of the year?
Justin Dye
I think as -- when we think about the U.S. consumer, we think about our consumers in Colorado and New Mexico, we see a little bit of price pressure at retail. I mean we've invested in lower pricing, lower that. We've had some hotter promotions and certainly being competitive with the market. But I would tell you, we still think -- we still really believe cannabis is recession resilient. That mean that you won't see a little bit of trading down, but I think it's a very safe sector for us to be in.
People are focused on the category. It's important to them in good times and bad times. And I think we're going to be fine. I think labor is still very strong. So it's sort of a mixed environment. But what we're seeing is certainly on the oversupply side in Colorado from growers, we've been able to work through that and take that -- really use that to our advantage on the retail side. And we've been able to drive more productivity, meaning drive more efficiencies and more cost out faster than we've seen any issues there on the COGS side. We wouldn't see any inflationary pressure whatsoever.
So, so anyways, I would say the industry is well positioned. I think the team did a nice job to continue to work on SG&A and efficiencies and driving lean process and big cost out of the business. I think we'll be set up for -- I think we're going to have a very good second half of the year. And the good news is we don't -- we've got a very good balance sheet and we really don't need a tap capital markets, either equity or debt for some time, so we can wait out and we're going to see how the environment evolves over time, particularly capital markets.
Joanne Jobin
Excellent. Thank you, Justin.
Justin Dye
Thank you, Joe.
Joanne Jobin
Thank you. Nirup, I'm going to swing this one over to you. Now that you are fully vertical with grow operations. Can you discuss how you expect this to impact your sales and products going forward?
Nirup Krishnamurthy
Yes. In Colorado, again, we secured cultivation farms this year, and we are starting to infuse some of the products -- some of the flower from our grows into our own stores. So our strategy is pretty simple, grow the best flower and have a portion of our assortment through internal means. And in addition to that, we will be developing products both in flower and on the CPG side over the course of time, again, to diversify our product portfolio and take it to both our retail and wholesale markets in Colorado.
In New Mexico, we are already fully vertically integrated. The acquisition we made was fully integrated and pretty much all our products in our stores in New Mexico come from our own manufacturing and growth facilities.
Joanne Jobin
Thank you, Nirup. All right. Nancy, here's a question for you. The improvements that you've seen in product margins and revenues continues to be impressive. Do you think you can continue this trend?
Nancy Huber
We are very focused on driving product margins. Revenues in the short term are going to be challenging as growth is not as exciting in this area as we wanted it to be, and you're seeing some pressure on that. But in terms of product margins, we're really focused on the verticalization in Colorado and helping growth -- push that margin through our chain as well as working with our supply-side vendors to reduce costs as well.
And so we anticipate that we will have margin available to us. Now whether we actually take that to the bottom line or we use that to drive growth through pricing will depend on the situation, but we believe we'll be driving improved costing in the system that will allow us to be flexible in the margin -- in the market because of that.
Joanne Jobin
Thank you, Nancy. And now we've got a question regarding, I would say, inflationary pressures and also the COVID aftermath. Has there been any challenges with hiring stock? Have you had to increase wages to be competitive? And if so, how will that impact operating results?
Nancy Huber
Nirup, why don't you take that one.
Nirup Krishnamurthy
Yes. So hiring in this environment is always a challenge, but we have been lucky so far. We have had good retention and we have not had to significantly revise our pay structure in either retail and/or grow operations. But as we look at the market and make sure that we are in line with market. We may make some adjustments in the future, but we have had good labor workforce. They are over 725 people in the company at this point in time. And we are very focused on ensuring that they have a sort of productive work environment and are happy working here at Schwazze.
Joanne Jobin
Thank you, Nirup. And I know you've answered this question before, Nancy in a roundabout way with your other answers. But this question always comes up. What sort of opportunities are you seeing in regards to refinancing your current debt?
Nancy Huber
Yes. So we're constantly talking to people. In fact, my treasurers are working today and said she thought there's another group out there that we should be talking to. So we're constantly talking to groups about opportunities to refinance as everyone is aware, the interest rates are going up. So finding anything that will make sense for us in the short term may not be possible. But we're always looking for opportunities. Adjustment inferred, none of our debt is coming up for payment in any rush. We have 2 to 3 years on all of our debt. So we -- like I said, we're constantly shopping. And if the opportunity arises, we will take advantage of it.
Joanne Jobin
Excellent. And we have someone that's got some questions in regards to product, in particular, Lowe Farms and the relationship that we have and what product lines we intend to carry. They have a new product line called Lowe 35, but that requires a special machine. For example, how would they allow their partners to use that machinery and that machine? Or would they fear that we would take advantage and lose the IP or at least a competitive advantage? When can we expect more acquisitions? And how many by the end of the year? So it's a 2-part question.
Justin Dye
And Nirup, why don't you handle the Lowe Farms component, then I'll talk a little bit about the acquisition side.
Nirup Krishnamurthy
That sound good, Justin. So we have an agreement with Lowe Farms to be the exclusive distributor of a few of, of 3 of their SKUs in the Colorado and New Mexico market. We have, in this first round, our dispute that we are launching are essentially, they're pre-rolls. We have the -- we have the singles, which is a 1 gram pre-roll. We have the Lowe quicks, which is, again, a 3.5-gram minis or dog walkers, as we call them, which is the 10 pack. And then we also have another 3.5 gram SKU called lower smokes, which is a 1 gram pre-roll.
And so we are -- those does not require any special equipment from a customer standpoint. But Lowell has provided us with all their SOPs in terms of how to produce and they've been very, very cooperative, and we are happy they are excited to be working with them and launching their products here in Colorado and New Mexico shortly sub beginning fourth quarter here. Justin, back to you.
Justin Dye
Yes. Thank you. We're really continue to operate and execute against our strategy, and we're going to continue to look for product opportunities where we can partner with great brands like Lowe Farms. We're going to continue to look at dispensary locations to continue to build out the state. And just to remind everyone, we have 23 stores in Colorado, and there's more than 600 adult-use cannabis dispensaries in the state.
So we have a lot of room for growth, and we're going to continue to do what we have been doing in finding really good locations and using our playbook to brand them and bring our products and bring in great assortment and service to do that, and we're doing the same thing in New Mexico.
We have a handful of stores that we will be talking about in making public as we open some new stores down in New Mexico this year as well as we're looking at acquisitions. So we're going to stay focused on these 2 areas and continue to deepen our product capabilities, deepen our dispensaries and being able to serve the market and we're going to continue to do that. And then we'll look at if there's other regional opportunities down the road that makes sense with our strategy and makes sense from a geographic focus standpoint, we'll look at other states down the road.
But right now, we're going to continue to do what we're doing in Colorado, New Mexico, and there's plenty of growth in those 2 areas for us to continue to grow the company. So that's the game plan.
Joanne Jobin
Thank you, Justin. And as we're hitting the quarter of an hour mark, we're going to start wrapping things up. We do have one more question. This is a question that comes up on every conference call that we do. And that is what is the plan for the company in 3 to 5 years? Where do you expect to be -- could a buyout be in the works, Justin?
Justin Dye
We really don't talk about speculation around deals and things like that. But what I would say this, as for our team members, for our management team, for our Board and for our investors, we have a very attractive company. We're going to continue to make it better and stronger and continue to get closer and closer to our wholesale customers and continue to get closer to our retail customers. And we think that creates tremendous value.
And we think brands are built at retail locations. And we think retail locations are incredibly important in building brands in driving stickiness to customers and really building a great company. So we're going to continue to focus on that. I think in the next 3 to 5 years, you can certainly see us being a regional operator and continuing to acquire and grow organically and do that in the markets that we serve. I think we certainly are welcoming a safe banking move at the federal level basis. We think that would give us a lot more freedom and frankly, it takes cash out of the stores, which is very dangerous for our associates.
So we think that's a good move. And then we may be on the list in the New York Stock Exchange or the NASDAQ down the road, and that would give us more presence and more liquidity and more visibility. Certainly, we could continue to acquire things and stay in the platforms or stay in the stock exchanges we're in today. I know this. If we continue to build a good company that's focused on customers, it has a great management team and create great opportunities for our team members and taking care of customers.
All of that just continues to work together, and we're going to create something really valuable and how we monetize that, how that gets -- whether we merge with someone or buy someone or take it up uplifting to one of those other exchanges. We don't know, but we're open to exploring that, but we're going to continue to focus on what's been successful for us. And I expect this to have a really good rest of the year. And we'll continue to do that until we get some federal help. And when that happens, we'll be ready to take advantage of it.
Joe, do we have anything else? If not --
Joanne Jobin
Thank you very much. Justin, I was going to ask you if you had a few final remarks before we ended the call today. But I think you pretty much said it all in that last question, you said it very well, as a matter of fact. So I -- with that, I would like to thank everyone for joining us today. And if you have further questions, please feel free to submit direct me at info@schwazze.com. This now ends the conference call for Schwazze. Good day, everyone.
Transcript part 1 ( Prepared Statement)
Justin Dye
Thank you, Joan. 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.
For the second quarter of 2022, Schwazze continued to outperform the market despite a challenging environment in Colorado. Our team has continued to nurture a vision of becoming the most admired cannabis company by making a difference in our communities and providing trusted products, brands and experiences that improve the human condition.
Our growth plans remain on track. And despite challenges for the entire industry, we maintain our conviction in our long-term plan of building a regional powerhouse, developing scale with a customer-first approach, curating a distinguished house of brands that are driven by passion for innovation, craftsmanship, efficiency and teamwork in leveraging data analytics and technology to drive decisions.
As we continue to navigate the lingering effects of the pandemic and now broader economic inflation as well as a challenging environment in the Colorado market, our team members delivered a record quarter in terms of revenue growth and adjusted EBITDA growth. And for that, I'm very proud. I would like to thank all of our team members for their commitment to our customers, hard work, enthusiasm and their commitment to driving operational efficiencies.
Since December of 2021, Schwazze has added 15 cannabis dispensaries to its retail network, 10 in New Mexico and 5 in Colorado as well as 5 cultivation facilities, including 4 in New Mexico and 1 in Colorado and one manufacturing asset in New Mexico.
Our accomplishment since December 2021 include -- on June 1, we announced the closing of the announced the acquisition of all assets of Urban Health and Wellness, which included an adult-use all the dispensary located in Denver's Vibert Highlands neighborhood and 7,200 square foot of indoor cultivation capabilities.
On March 23, the company's common stock commenced trading under the symbol SHWZ, on the NEO Exchange a Tier 1 Canadian Stock Exchange based in Toronto, Canada. On February 16, 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 operator to retail cannabis dispensaries located in Manitou Springs in Glendale, Colorado.
We officially became a regional MSO when we acquired the New Mexico operating assets of Reynold Greenleaf & Associates, LLC, and the equity of Elemental Kitchen & Laboratories, LLC, and we also strengthened our New Mexico management team. This transaction included 10 Greenleaf licensed medical cannabis dispensaries, the all-Greenleaf brand, 4 cultivation facilities, 3 operating, 1 in development and 1 manufacturing location.
In late January, we announced the acquisition of the assets of Drift, which consists of 2 cannabis dispensaries located in Boulder, Colorado. We continue to develop our decentralized operating system that fosters local management oversight, agility, efficiency and responsiveness to our customers and local communities.
Most importantly, we continue to build out our house of retail brands in Emerald Fields and our Greenleaf dispensaries and expanding the Purplebees date brand in both Colorado and New Mexico. Last quarter, we also announced a license agreement with Lowell Farms to manufacture and distribute Lowell smokes, a premium line of pre-rolled joints to dispensary statewide in both Colorado and New Mexico.
We expect to begin sales to commence in Q4 of this year 2022. We continue the construction of our Colorado distribution center as part of our retail wholesale playbook expansion, which is expected to be operational in Q4 2022. On April 1, 2022, Schwazze commenced selling both recreational and medical cannabis in New Mexico. We can report that New Mexico sales have increased 30% over prior year's quarter 2 for the same-store sales. We are pleased with these results and continue to see sales growth month-over-month.
We have plans to open additional stores throughout the state this year and next, adding coverage areas where we currently do not have dispensaries. Our revenue for Q2 totaled $44.3 million compared to $30.7 million in the same quarter 2021, representing an increase of 44%. We generated net income for the second quarter of $33.8 million compared to net income of $4.4 million for the comparable quarter in 2021.
The company's adjusted EBITDA for the quarter was adjusted EBITDA for Q2 2022 was $15 million, representing 33.9% of revenue. We're also pleased to report that despite industry pressures, retail sales were $38.1 million, up 77% compared to the same period last year. Colorado 2-year stacked IDs for quarter 2 2022 compared to quarter 2 2021 and quarter 2 2020 for same store sales were 1.8% and one year IDs were down 12.7% comparing Q2 2022 to Q2 2021. Average basket size for quarter 2 was $59.98, we are down 4.1% compared to quarter 2 2021. Recorded customer visits for Q2 2022 totaled 444,771 down 8.9%, compared to quarter 2 2021.
New Mexico, 2-year stacked IDs for quarter 2 2022 compared to quarter 2 2021 and quarter 2 of 2020 for same-store sales were up 41%- and 1-year identical were also up 30.4% when comparing quarter 2 2022 to quarter 2 2021. Average basket size for quarter 2 was $54.56 down 12.7% compared to quarter 2 2021. Recorded customer visits for quarter 2 2022 totaled 209,591 up 49.4% compared to quarter 2 2021.
While basket for both Colorado, New Mexico were down quarter-over-quarter, distributed really attributed to macro events and previous year's stimulus spending and inflation. We're pleased to report that we once again outpaced the state of Colorado for the quarter by 11%. I think this is a remarkable achievement when you consider the challenges faced by the industry at this time.
As stated in our reported last quarter, we believe that we will continue to cycle COVID 19 retail numbers for the first half of this year, and we will anticipate growth in Colorado market to continue to be challenging the rest of the year due to increased cultivation capacity in the state, which has resulted in oversupply of wholesale cannabis biomass. However, we are benefiting from the recreational market in New Mexico, which assisted in offsetting that slower growth.
The quarter, we generated approximately 86% 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 see additional growth in recreational sales in New Mexico. Through the implementation of our operating playbook, we continue to effectively contribute to growth and efficiencies at our manufacturing and retail locations.
In retail, we continue to review our product categories, aligning product assortment across our dispensaries and working with our vendors to promote products and work with our vendors to recognize savings as we move to a DC model in Colorado. We have revenue the drift in the smoking gun stores to Emerald Fields and Starbucks and completed remodels in the drift dispensaries. We expect the smoking gun location remodel now revenue to Starbuds, will be completed this quarter. All 3 dispensaries are experiencing increased revenue and traffic that we attribute to these activities.
As for the federal and state government laws regarding cannabis legislation, we cannot report once again that there's been no significant movement or changes on the federal ex basis. We believe we're positioned to take advantage of any positive new look in federal legislation. And on a positive front, more states continue to legalize both medical and adult-use cannabis. As always, we'll stay close to federal and state changes that would impact our industry, and we believe we're poised to succeed in that as things change.
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 EBITDA 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. Nancy?
Nancy Huber
Thanks, Justin. I'd like now to review our financial results for the second quarter of 2022. As Justin mentioned earlier, Schwazze reported revenues of $44.3 million, an increase of 44% compared to $30.7 million in the second quarter ended June 30, 2021. The revenue for the quarter included retail sales of $38.1 million, wholesale sales of $6.1 million and other operating revenue of $44,000. As a reminder, we added Emerald Fields, Drift, Brow 2 and New Mexico in late January and mid-February this year as well as the recent urban wellness asset purchase, which closed in June.
In addition, New Mexico added recreational sales in Q2 of this year. Much of our revenue growth this quarter over prior years due to these acquisitions and the change in regulation in New Mexico. Wholesale revenues decreased due to an oversupply of wholesale cannabis in Colorado, driving down pricing and overall decreases in the Colorado market.
Total cost of goods and services for the quarter totaled $19.1 million compared to cost of goods and services of $15.8 million for the same quarter in 2021, representing an increase of $3.3 million or 21%. The increase in cost of goods is driven by the increase in revenue, however, not at the same rate. In the quarter, the company experienced a reduction in costs driven by vertical integration and third-party price negotiations.
Gross profit increased to $25.2 million for the quarter compared to $14.9 million during the same period in 2021. Gross profit margin increased as a percentage of revenue from 48.5% to 56.8%. And net of purchase accounting, the gross margin increased to 57.4%. This positive result net of purchase accounting, continues to reflect our consolidated purchasing approach, the implementation of our retail playbook and the vertical product sales in New Mexico.
Operating expenses for the quarter totaled $16.1 million compared to operating expense of $10.5 million during the same quarter in 2021, representing an increase of $5.6 million or 54%. This increase is mainly due to increased selling, general and administrative expenses, professional service fees, salaries, benefits and related employment costs, driven by growth from the acquisitions.
Other income for the quarter totaled $29.2 million compared to $0.2 million for the comparable quarter in 2021. Representing an increase in income of $29 million or 18,435%. The increase in other income is due to the revaluation of the derivative liability related to investor notes, offset by higher interest payments. The company generated net income for the quarter of $33.8 million compared to net income of $44 million in the same quarter of 2021.
Basic earnings per share were $0.65 for the quarter versus $0.10 for the prior year's quarter, and diluted earnings per share were $0.24 for Q2 of 2022 versus $0.08 for the prior year. Adjusted EBITDA for the quarter was $15 million, representing 33.9% of revenue compared to $10 million and 32.6% of revenue for the same period last year. This is derived from operating income and adjusting onetime expenses, merger and acquisition and capital raising costs, noncash related compensation costs and depreciation and amortization, see the financial table for adjusted EBITDA in our press release for the details.
For the 6 months, the company used cash for operations of $8 million compared to generating cash of $1.4 million for the same period in 2021. Schwazze currently has cash and cash equivalents of $33.9 million at the end of the second quarter, and we expect to generate positive cash flow net of acquisition costs for the year.
Turning now to the outlook for 2022. Our Q4 2022 run rate projected revenue guidance was revised to reflect the current industry challenges. Guidance for our fourth quarter annualized run rate, including transactions that are announced but not closed, is now projected to be approximately $175 million to $200 million. And the projected fourth quarter adjusted EBITDA annualized run rate is projected to be from $60 million to $72 million. Our Q4 results are usually affected by seasonality, with Q4 being one of our lower revenue quarters, and our guidance reflects that.
Despite the industry pressures, we remain optimistic that 2022 will continue to 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 today. And now I'm going to turn it back to Justin, who will open the call to questions and answers.
When we meet on the 22nd i tell you more of what i think of that whiners comments, He is very biased although he pretends he is not and he doesnt like our Ceo , probably cause Justin doesnt really need or want any ones approval, That makes are investor relations in terms of Institutions/Analyst almost invisible . But in the end JD is showing them how its done
I listened in on the call , JD said there is 600 Dispos in Colorado and we only have 23 so there is plenty of room for growth . He ended with " i think we will have a very good rest of the year"
Nancy Huber "despite difficult market conditions in Colorado, which we believe to be transitory and temporary. "
Doc
Investor relations replied that that added our questions to the cue
Pi Financial reiterates $1.10
Cannacord Genuity says .40 cents
Question And Answer
Operator [1]
[Operator Instructions] And our first question will come from Bobby Burleson with Canaccord.
Robert Joseph Burleson, Canaccord Genuity Corp., Research Division - MD & Analyst [2]
Sorry for any background noise. I guess the first one would be just trying to understand some of the research you've done on the 35's -- the LF 35's launch. It sounds like you see some nice prospects there and it's fitting into -- looks like a hole in the market. So just maybe a little bit more detail on what your assessment of its prospects?
George Allen, Lowell Farms Inc. - Chairman of the Board [3]
Well, Bobby, I would tell you we could go hard on this topic for a long time. We've done a lot of work on this. Really, I would generally say where we think the need comes from is really an understanding of who drives the cannabis market. And when you look at the data, of who buys cannabis today, 90% of the cannabis that's consumed inclusive of the illicit market. 90% of the cannabis consumed, we estimate is bought by the consumer, who smokes every single day. So we really wanted to understand what the use case for that consumer is, right?
So we spend a lot of time trying to find that consumer because I think we talk a lot in cannabis, and it's really fun to explore the novelties of cannabis discovery for people, who haven't smoked a lot of weed or aren't smoking a lot of weed. But when you really look at the market and the big dollars out there, it -- the sort of the fat pitch coming down the middle are is this -- is this daily cannabis consumer. But a lot of these consumers, who are relatively heavy users, in a lot of cases, they buy from the illicit market, in a lot of cases, they buy weed at volume because they're price-sensitive, right?
If you use something like cannabis every single day and some consumers smoke up to an 8 a day, some of those consumers, they're super sensitive about price point. And so a lot of what was happening in the market was sort of failing from how to talk to that consumer, how to go find that consumer. And frankly, we've got some leadership on our board from the tobacco industry, and so we spend a lot of time looking at the tobacco industry and the history of tobacco industry and how the tobacco industry went from loose tobacco into cigarettes. And really, a lot of it -- a lot of it came down to sort of the price point of when you can achieve price parity with flower.
And if you take our flower today, our flower today [indiscernible] flower that we sell could be on the market for anywhere from $28 to $35. Our pre-rolls, the sort of the legacy pre-roll pack that Lowell is so well known for, that pre-roll is on the market for anywhere from $40 to $50 in California and higher in other markets. And so you really are -- that product and that brand, even though it represents sort of a high -- sort of a high watermark in terms of brand legacy, is sort of out -- is priced out that, that cannabis consumer.
In addition to that, we also -- we really started with the fact that like during COVID, what happened during COVID was the consumers started smoking more cannabis, and we -- this is pretty well documented, but you're smoking a lot -- a lot more often you're smoking sort of alone. And even when you were smoking with other people, you weren't sharing cannabis. So one of the journeys that we had to go on was how to get the pre-roll smaller. And when you try to get form -- when you try to get the form factor down in terms of dosage size, what happens is [ your ] costs start to skyrocket. So the only way to really unlock the single-use serving size or sessionability of a pre-roll for this sort of daily smoker in cannabis is to try to get your cost down. And the only -- really the only path to doing that was in automation.
So we -- then we started exploring sort of automation, and it sounds easy, but it has been an incredibly long journey for us to sort of crack the code on automation. And we think we -- we think we have, and I think that the product that we're coming out with at the beginning and next month or potentially the end of this month is truly game changing. And so we're super excited about it. We think it does present that sort of daily cannabis consumer, an alternative to have fresh, really high-quality, good cannabis experience in their pocket at all times in the form of flower. So we're very excited about it.
Robert Joseph Burleson, Canaccord Genuity Corp., Research Division - MD & Analyst [4]
And then just on the CPG revenue, how tightly correlated is your kind of year-over-year decline there and some of the weakness you're seeing for that business to just overall same-store sales comps in the retail channel in California.
George Allen, Lowell Farms Inc. - Chairman of the Board [5]
Yes. I mean I don't have the exact data. I do know that during the quarter, we lost share. We decidedly lost share during the quarter largely in flower. And flower historically is almost an impossible brand product to really hold on to brand. But it's very hard for you to get consumers because consumers have so much more data when they buy flower, right? They have potency levels that are printed on the jar. They have the how the flower looks and the jar appeal, the bag appeal. So the -- so the brand sort of ends up being sort of far less important for the consumer. So the consumer goes into a dispensary and price tends to be a factor and look and peel and smell tend to come in place as well. But way down the list is sort of like brand.
And so what that means is that as other flower producers drop price and pretty aggressively dropped price during the quarter, we sort of refrain from doing it, and that means we lost share. And the reality is we couldn't afford [ for it ] to chase, and it doesn't make sense to brand. What you don't want to do is, you don't want to chase because pricing is a one-way street in cannabis. We've learned this too many times. If we drop our flower price, it denigrates our brand, especially on the eve of a new product launch, which we want to have an elevated brand. But then in addition to that, we know that we can never really raise prices again. And so we just made a conscious decision, and I don't know how to play out the alternative set of facts and what it would have looked like had we not -- had we not held price or been so convicted on holding price. But I suspect that top line would have been healthier in CPG, but we probably would have suffered on margin.
Operator [6]
Our next question will come from Jason Zandberg with PI Financial.
Jason Zandberg, PI Financial Corp., Research Division - Special Situations Analyst [7]
I just wanted to get your thoughts on the elimination of the cultivation taxi California. So specifically, what would -- what would it look like if it was in effect at the beginning of Q2, sort of what would the cost savings? And just generally, your high-level view on what you think this will do in terms of -- obviously, it's going to be lower cost, so competition with the illicit market will be easier. But do you think that -- and so what sort of impact do you expect this to have?
George Allen, Lowell Farms Inc. - Chairman of the Board [8]
Yes. I mean -- so if we held on to all of it, right, if we held on to all the cultivation tax for CPG products, for anything that's flower based, it would be sort of greater than 10 point of margin shift, 10 points to 15 points of margin shift. The reality is that I think that is an ephemeral way to look at it because I don't see that margin -- I don't see how that's possible to hold on to it. In fact, we've -- some of our products, we've given the savings, not all of that, we've given a great portion of the savings back to retailers, just because the fundamental issue is that you've got more supply than there is demand in the market.
And so when it comes to like a big step function change, where everybody gets $1.40 off on an [ 8 ], you kind of have no choice, but to pass that along because it's a prisoner's dilemma, the first person that does it is going to get the share. So when it came to like that change in the market, we looked at all our products and we said, how many of them are commoditized, which ones are the most commoditized. And if they're most commoditized, can we expect the prisoner's dilemma, we expect somebody else to be the first prisoner, but then -- then we're going to get in front of it.
In some of our other products like our Lowell pre-rolls, which tend to be very sort of stable and price agnostic for consumers within a relative pricing band, we didn't see the need or the feel need so much to compromise in terms of price. So there, we should see margin expansion, but it's going to -- to a lesser extent because they're higher priced, our legacy pre-rolls are higher priced. So it's not quite 10 points. But -- but I will say that we have probably been more firm on holding price there. A lot of the stuff, it will remain to be seen like how fast the market adjusts.
In general, I think the case for the cultivation tax, and I think this even went to the policy decision that they made in Sacramento, the case for the cultivation tax reduction is really about trying to compete with the illicit market. And if the price -- the tax cut gets to the consumer into the dispensary and the effective price drops in the dispensary, then I think -- and this is a positive, then I think that there's a chance that some, some incremental wave of consumers that was making the -- that were making the decision to go to illicit market could potentially be lured into the legal dispensary market and so growing the pie.
And I think that's where probably the affirmative case is for the cultivation tax relief, probably more so on a longer-term basis than just a margin boost for all cultivators. And I think any cultivator that thinks that they're just going to pocket their cultivation tax relief and not see pricing degradation on the backs of it, I think that's kind of [ foolish to do ] especially when it comes to anybody, who's predominantly selling flower.
Jason Zandberg, PI Financial Corp., Research Division - Special Situations Analyst [9]
Just can we -- can you just give some color on just your out-of-state revenues that fell during the quarter. Obviously, you're going to get some, some help with addition of Colorado, New Mexico. Just wondering if you could address both the decline and then sort of the -- what your expectations are for adding those 2 new states?
George Allen, Lowell Farms Inc. - Chairman of the Board [10]
Yes. So the royalty decline is obviously [ that's ] more challenging [ or the ] more concerning, right? So in our revenues, we have a combination of royalties, which are high margin, almost all margin. And then we have -- we have packaging sales, which are -- I think we make 5 points of margin on the packaging sales. So a large -- and to a great extent, and Brian showed the exact numbers, but to a great extent, the decline was accounted for by a decline in packaging sales, which is timing of packaging sales and timing of inventory.
But there was also a pretty material decline in royalties, and the royalty decline is something that we're really focused on. And that's [ where] I would say, the health of that business, I think we've suffered a little bit from some quality issues that we've seen in the market and probably a little bit of footfalls on our side in terms of brand support and to reaffirming those brand, as our competitors are sort of getting a little bit more savvy. We've added some resources locally to start to improve the brand support that we're gaining. We are seeing some traction on that so far this quarter.
So I think that we have -- I think that we have a good plan of action there. The quality issues that we're struggling with a little bit are just partnership issues. I think Ascend has been a great partner to us. At the same time, I think the focus that they've given the brand at times has been ebbs and flows. And so we're just trying to make sure that we get our fair share of attention from them.
The brand is still the #3 pre-roll brand in Illinois and sort of somewhere close to that in Massachusetts. We have a lot of potential. And really, that licensing is about getting consumers familiar with the brand and using that opportunities to sow the seeds for future product development, as well as complementing our margin profile. So I think I think we've learned some lessons from it. I think we've also -- we're trying to be a better partner to Ascend and maybe being a little closer on a daily basis, as to how things are being managed over there and greatest on our report card from here?
Jason Zandberg, PI Financial Corp., Research Division - Special Situations Analyst [11]
And then just a look ahead to Colorado and New Mexico?
George Allen, Lowell Farms Inc. - Chairman of the Board [12]
Yes. So Colorado, New Mexico, I think they're probably going to launch -- I think they're -- we're trying to get it in this quarter. It's going to be at the end of the quarter. If it is -- if it lands this quarter, I'm super excited about it. I think Colorado is just an awesome market to be in, and I see a lot of blue sky. Despite Colorado is really sort of crafty market, it's very craft, like brands are very crafty and localized. And I think there's a blue sky opportunity there to be sort of -- to sort of be like a little bit bigger of a brand. And I think so that Colorado is just a market we have to be in, if you want to have [ street cred ] in cannabis.
New Mexico, I think this is a good market. Schwazze has a great footprint there. I would say it probably wouldn't have been a market that we rush into, but for what's the partnership in Colorado and grateful for it, and we can't wait to be there as well. But as I said, I think the impact is likely to be much more Q4 and we'll give you guidance, as to how things are headed there. But I think it's very likely to hit towards the end of the quarter.
Operator [13]
[Operator Instructions] Our next question will come from Doug Cooper with Beacon Securities.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [14]
Good evening, George. Just on the 35's launching towards the end of this month or early in September. Can you talk a little bit about your distribution strategy and given that this is a new product for the consumer and the dispensary, the bud tenders, have you run focus groups or like what is your strategy for roll out there? And how quickly do you think you can gain share in shelf space?
George Allen, Lowell Farms Inc. - Chairman of the Board [15]
Yes. It's really the million-dollar question, as to how fast the ramp goes. I mean what I generally tell you is like our conviction level from top to bottom in the Company, about the quality of the product, the price points and the differentiation of the product, the uniqueness of the product, I don't think that there's any disagreement whatsoever about all those testimonies. And so I think we get -- we have a -- we have almost unanimous consent about where we go eventually. The path to getting there is a little bit more challenging in California, in terms of predicting it. You've got a lot of retail end points that we're trying to get distribution through. We're trying to focus our efforts to a very limited number of end points, I mean retailers initially at launch because we want to make sure that consumers have a really good experience with the product. We also want to point consumers to a store that's going to have adequate inventory and volume to support the roll out.
What I'll generally say is like we are pushing everything we have on a limited budget, but we're pushing everything we have behind this product launch. We think we've got all the key ingredients behind it. The big factor -- the big swing factor here is going to be what's the adoption ramp look like. But from just a consumer and what the consumer is looking for, I think we've got a product that is really well tailored for this advanced California market. And I think there's also a strong belief that this product will get dragged or pulled into other markets, which we're looking forward to.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [16]
So can you give us an idea, are you going to launch in the Los Angeles area? Or is there a specific region you want to...
George Allen, Lowell Farms Inc. - Chairman of the Board [17]
Yes. I mean when you really think about California, there's islands of cannabis. So we're picking somewhere between 5 and 7 stores to initially launch and we're giving all those stores virtually bottom less inventory, basically refilling them every night as much as we can. And then we're doing a big social media push to drive consumers to those stores. And that way, we can make sure that the experience in those stores, the education level, the bud tenders in those stores, the engagement level, the social media push, the homepage takeovers, all of that stuff we can manage when it comes to a smaller footprint release and we can cover almost the entire state.
So that those stores are relatively geographically diverse within the state. We haven't picked all our partners just yet, but we're in the process right now. And what we're targeting for is a store that is an 80% probability that's within a 10-minute drive of 80%, as I said, 80% of the consumer. So trying to get as much as we can, San Diego, L.A., Bay Area Cities, San Francisco and Sacramento, all of those sort of big sort of islands are going to be covered.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [18]
So can you just walk through how many machines do you have -- pre-roll machines you have? What's the capacity? What's the throughput on those, do you think? And when you talk bottomless inventory, like this is inventory come from LFS or coming from -- I mean, where is the actual product coming from?
George Allen, Lowell Farms Inc. - Chairman of the Board [19]
Yes. So right now, we're putting -- I want to be a little careful about the -- Doug, I have to think a little bit about machine count and giving -- and giving -- I don't think that we're going to be supply constrained. Let's put it this way. I don't think that we're going to be supply constrained at this launch. I think it's about generating as much demand as we can.
I want to be a little bit careful about talking about the sort of general unit economics of the engineering product because I just don't want -- we have a moat and I need that moat, as deep and wide, as I can make it. So -- and recognizing that a lot of our competitors listen to the call. So what I will say is that we think we have a lot of capacity that -- where demand is going to be the primary driver. I would say we are extremely excited about the launch, but we -- the one thing that we're, I think, trying to be tepid about is the pace of adoption.
And by the way, we're also willing and excited to hear customer feedback and iterate alongside customer feedback. We've done a tremendous amount of work on our side, getting the product right, but that doesn't mean we're blind or immune to or deaf to feedback from consumers.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [20]
And just I guess, [ from my indication ], when you say single, [ this is ] single dose, is this like [ 0.3 of a gram ] or [ 0.25 or 0.2 ] or something like that?
George Allen, Lowell Farms Inc. - Chairman of the Board [21]
Yes. So the product -- the reason why the product is called the 35's [ is just ] 350 milligrams. It basically 10 sticks to a pack, making up an 8. We are -- we are engineering and preserving the ability to go up and down in size. So the way we think about it is the consumer, who likes cannabis sort of dials in on exactly what they think the right kind of amount of cannabis is that they want to have in each [ stick ], right? And the price point is commensurate to that.
So in the future, we'll be going smaller and we'll be going larger to give consumers, a serving size choice because one thing that we decided in the beginning of COVID, we were all relighting way too many joints, right? Like the kind of prospect of relighting weed is like one of the most [ disgusting ] phenomenon. But when you're sitting there with a 1 gram joint and there's nobody around to share with during COVID, it sits there in an ashtray and you either throw it out and waste a lot of weed or you relight it, and you just taste disgusting.
So what we're trying to do is make sure that we're trying to create weed and sort of sessionability and that -- look, it's changing the way consumers behave can take some time. But when we really look at the way our hardcore smokers perform and what they look for this product really does seem to fit them all. So we'll see. I mean, look -- we're looking forward to seeing how it hit.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [22]
And just on the pricing, when you said pricing is a one-way street, so you want to make sure I guess, the launch price, you want to get it low enough to attract people, but then maybe you can't raise. So when you said [indiscernible] [ 28% to 35% ], I think that's yours, but the Street sort of lowered and the competition lowered [indiscernible] by 30% is already said in the quarter. So what is the pricing strategy out-the-gate.
George Allen, Lowell Farms Inc. - Chairman of the Board [23]
Yes. We're trying to get it out the door at pre excise tax than $20. And so I think a lot of that -- a lot of the reasons why we're launching with a limited set of retailers right away is we're trying to encourage the retailers to launch with sort of a more consumer-friendly keystone. And so part of the narrative for us is to approaching retailers, who are willing and working with retailers, who are willing to be a little bit more aggressive on keystone with the consumer.
So we're going to cut price, and we're going to be pretty aggressive in terms of how we price it to those retailers because we -- I mean, we have a lot of savings here, right? We've engineered the system here to create a lot of savings. And so we want to make sure that our consumers get the benefit of that. And remember, what you're trying to talk to, you're trying to talk to the consumer, who usually buys weed by the ounce or by the half ounce, right? That consumer is super price-sensitive and you're not going to get their attention with a [ $30 8 ] pre-roll. It just won't happen. So we're trying to get their attention and we have the margin to do it. Obviously, margin is something that we're working very closely on right now to refine, but we do have the margin with our systems and infrastructure.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [24]
So on the back of the envelope, if yours -- if there's -- if the retailer is selling to me, the consumer $20 plus excise s tax, what are you selling to the retailer at? And then what is your cost? Can you just give us an idea, ballpark what the margin growth well, might look like compared to your CPG product today exactly?
George Allen, Lowell Farms Inc. - Chairman of the Board [25]
Yes. So I'll give you some guidance on this. What I'll say is -- it is work in progress.. We do have some flexibility built into the system on pricing. We're somewhere in the [ $10 to $11.50 ] range in terms of price out the door. And I'm [ going to do everything ] I can to get us close to $10. And yes, at $10, we're operating at a [ 6-plus ] margin.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [26]
Sorry, you missed that George, part, operating at what.
George Allen, Lowell Farms Inc. - Chairman of the Board [27]
A 16%-plus material margin.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [28]
And then, I guess, moving to the balance sheet, $2.2 million cash at the end of June. What was the -- what's the CapEx that you expect in Q3, including buying the machines, I think or was that for stock? I don't have the net, I only have the press release right in front of me, but -- and then [indiscernible], yes, go ahead
George Allen, Lowell Farms Inc. - Chairman of the Board [29]
No, if you remember -- do you remember that originally, yeah go ahead.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [30]
And then maybe just walk through the $2.2 million regarding -- was that IRS rebate or something else? Sorry, I didn't quite get that?
George Allen, Lowell Farms Inc. - Chairman of the Board [31]
Yes. So once again, there is still -- the original All Good transaction was a stock transaction and cash transaction, the cash fees was $1.5 million. So that commitment we've funded with the cash that we had. And we also were able to bring in to factor this IRS receivable related to the CARES Act and the CARES Act basically had a provision for recovery of payroll taxes associated with the COVID burdens.
So we had an IRS receivable that our company filed in, I believe in April and May of this year. And we chose to factor that receivable to an interested party in order to get some additional cash in the door to fund some of those CapEx. So the $1.5 million is through the machines, but there's also CapEx associated with our facility improvements and preparedness. And we'll give more clarity around that -- but the $1.5 million is by far the biggest chunk of it.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [32]
And sorry, just my last one, I guess, would be we're halfway through the third quarter essentially. If you take a conservative launch on the 35's given what you see in the market now on the CPG market and the bulk and so forth, do you expect to be cash flow neutral in the quarter. [indiscernible] maybe give us some sort of guidance?
George Allen, Lowell Farms Inc. - Chairman of the Board [33]
I mean I think we're definitely going to consume cash during the third quarter inclusive of the CapEX...
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [34]
Just from operations, I am talking about. I am -- yes, just talking about the operations, excluding CapEx.
George Allen, Lowell Farms Inc. - Chairman of the Board [35]
The -- what I would generally say is, I would say, third quarter, the bar will be high for us to be cash flow neutral from an operational perspective given some of the operating investments we're making around the 35's launch and launched the product out there accelerating, but and some of that will be reflective of working capital going into inventory.
The market conditions for us, like what I'll generally say is our business, where bulk prices are for flower right now, the only answer for us is to gain CPG revenue dollars. I mean that's where the margin future is for our Company. So we need to gain traction in terms of more CPG and margin dollars and doing that outside of the low-margin category of flower. So that's our primary focus right now. That's really what the 35 launch is all about. I think we'll have a lot more to say about our trajectory and success in doing that this time next quarter. But I think we'll also be updating as time moves on in terms of the traction of launching them and how things are going.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [36]
Sorry. And just my last one. I think you have access to 8 machines. Is that right? And you brought in 3? Is that where you stand right now?
George Allen, Lowell Farms Inc. - Chairman of the Board [37]
So yes, I want to be a little bit careful about that -- the answer. Right now, the machines that we have under contract -- well, right now, we have 2 machines, 2 machines, we've got another machine coming either towards the end of this year or early next year, and then we've secured an order for more, more next year. I want to be a little bit careful about how many -- how many exactly.
Doug Cooper, Beacon Securities Limited, Research Division - MD & Head of Research [38]
And if Ascend or Schwazze says you're shooting the lights out with [indiscernible] brand now has basically switched from the new style pre-roll. Would you give them access to machine? Or are we getting ahead of our association?
George Allen, Lowell Farms Inc. - Chairman of the Board [39]
It's a really tough question for us. It is a really tough question. I think the world is changing so quickly right now in terms of cannabis. Regardless of where we are from like a policy standpoint, cannabis is moving more freely around this country. And I don't know whether or not we want this product to be -- we don't know yet, whether we want this product to be some -- something that other people control.
I think it's -- I think we need to learn a little bit more about our capabilities and margin profile. It's a complicated -- this is a really complicated product to make, and it represents a tremendous amount of IP, a lot of which we acquired in the All Good transaction. So I'm really reluctant right now to [ use the future], where we just say, here are the keys, you guys can make this. And by the way, sure, go ahead and make whatever else you want. That feels a little dangerous. So then you're left with other options. Do you basically tell the consumer, the only way you're getting this product is come to California and get it? Or do you tell the consumer we're going to make the capital investments in your home state to try to replicate the experience? I don't know. I think it's too early to say.
I am going to email question prior to todays investor conference call , anyone have some question they want me to ask ?
joanne.jobin@schwazze.com
If you have never run a business then u may believe those jokers and in fact they may have never even worked there ?
More news on Safe Banking Reform
https://finance.yahoo.com/video/cannabis-reform-never-more-bipartisan-154311158.html
Boris Johnson from Curaleaf
"This is the best chance Safe Banking we ever had bc booker pivot and GOP wants banking / issue behind them; ABA FinCEN DOJ wants it too; McConnell can hang on Dems."
"the % from people I trust on SAFE went from 50-> 80% in the last month."
"I think we get this done lame duck"
BoJo on SAFE+
— Todd Harrison (@todd_harrison) August 10, 2022
"best chance we ever had bc booker pivot and GOP wants banking / issue behind them; ABA FinCEN DOJ wants it too; McConnell can hang on Dems."
"the % from people I trust on SAFE went from 50-> 80% in the last month."
"I think we get this done lame duck"
^24 min
many people are missing a big narrative that is shaping up , Cali has announced a month ago 1 billion in efforts to reduce illegal cannabis
https://www.benzinga.com/markets/cannabis/22/08/28434552/lowell-farms-q2-revenue-grows-6-sequentially-despite-the-booming-illicit-cannabis-market
After listening to the call yesterday, it seems one of the better bright spots for lowell and their licensing agreement has took a turn for the worst they are averaging between 700k and 1 mil a quarter for the last three quarters, this quarter it was 300k Why was it only 300,000 .It's really simple they had nobody representing their product they just made a relationship with another MS0 who's solving its own problems to deal with they were unconcerned with Lowell.
George Allen the CEO mentioned on the call that they had people representing them now and those other states they did have an add running on LinkedIn last month looking for Representatives. so let's say they realized what has to be done and they put a plan into place to remedy that it's not going to happen overnight.Ultimately you still have the similar problem of really not controlling your product quality when your not manufacturing it , the standard proceedure is to make prerolls with shake or trim , who know what Ascend was doing and why after 9 months/3 Q's of solid Revenue , the sales fell off a cliff
The new line of Lowell 35's which is probably one of the bright spots for lowell will launch this month in California , however that would take a long time to materialise because he sensually they've invented a new way to consume cannabis in a very small pre-roll basically shaped like a cigarette what's an incredibly low price point for a wholesaler around ten bucks and to be retail around 20, Lowell realized That 90% of cannabis is consumed by the daily smokers and daily smokers don't really want to put down a joint and have to relight it after it goes out so 35's is Lowell solution to that problem . That takes time which will translate to competition , obviously Big tobbacco knows how to do this . The bigger difficulty is for them to do it in other states , to just a hand one of their proprietary machines over it isn't really a good idea because it won't take long for somebody to just break it down and make their own and steal all their IP, George Allen mentioned that the solution was not an easy one that he couldn't really give an answer and how they would grow that line in other states. and speculated that one possibility was to do it themselves, but that requires alot of capital
Truthfully almost everyone had or is headed for a down quarter. Particularly in California. They are moving in the right direction , Selling plane old cannabis is a race to the bottom its about Brands , and Lowell has one of the best
I have to say I believe George Allen is one of the brightest CEOs there is in cannabis. He appears to be very sincere and it's absolutely passionate about Lowell and their success
Another Partnership
https://1906newhighs.com/
One of many partnerships tilt is forming , Its an Asset light approach . Maybe more than anyone else?
An afternoon of incredible people, free weed, amazing food, music and the backdrop of beautiful Cape Cod. @TILT_Holdings @CommonwealthAlt pic.twitter.com/fvp568aaYr
— Her Highness (@HerHighnessnyc) August 8, 2022
Lowell Farms Inc. Announces Unaudited Second Quarter 2022 Financial and Operational Results
SALINAS, Calif., Aug. 09, 2022 (GLOBE NEWSWIRE) -- Lowell Farms Inc. (the “Company”) (CSE: LOWL; OTCQX: LOWLF), a California-born innovator in cannabis cultivation and maker of the legendary brand Lowell Smokes, announces unaudited revenue and operating results for the second quarter (ended June 30, 2022). All figures stated are in US Dollars.
Second Quarter Financial Highlights:
Revenue generated for the three-month period ended June 30, 2022 was $13.2 million; an increase of 6% sequentially and down 13% from Q2 2021, reflecting a 51% reduction in bulk flower pricing year over year.
Bulk flower revenue increased 94% sequentially while declining 37% from Q2 levels last year due to lower pricing.
CPG revenue declined 18% sequentially and 23% from the prior year, as the company held pricing stable and reorganized its CPG offering.
Lowell brand revenues remain strong representing 66% of CPG revenues compared to 60% in the prior year.
Lowell Farm Services (LFS) revenue increased $1.2 million from the first quarter due to spring harvests and third-party bulk flower revenue.
Gross margin as reported was 11.3% in the second quarter compared to 12.7% sequentially and 37.9% year over year, reflecting strong bulk pricing in the prior year.
Operating expenses were $4.5 million or 34% of sales for the quarter, compared to $4.0 million or 33% of sales in the first quarter and $6.2 million or 41% of sales in the first quarter last year, reflecting cost reductions realized in the current year.
The operating loss in the second quarter was $3.0 million compared to an operating loss of $2.5 million sequentially and an operating loss of $0.5 million year-over-year, reflecting significantly lower bulk pricing year over year.
Net loss for the first quarter was $4.6 million compared sequentially to a net loss of $4.1 million, which compares to net income of $0.7 million in the second quarter last year, which included an insurance claim receipt of $2.6 million and favorable bulk flower pricing.
Adjusted EBITDA in the first quarter was negative $1.1 million compared sequentially to adjusted EBITDA of negative $0.9 million and positive adjusted EBITDA of $0.7 million year over year. Adjusted EBITDA is a non-GAAP financial measure. See “Use of Non-GAAP Financial Information” below for further information and a detailed reconciliation to Net Loss, the closest comparable GAAP measure.
Lowell Farms Inc. will report Q2 earnings after market closes on Tuesday, August 9. Investors are invited to join the earnings call with management at 5:30 p.m. EDT for a discussion of these recent financial and operational results.
https://t.co/0RAHYlxqie
That is a smart move by curaleaf, they needed to limit themselves in a competitive market that expose's weakness ,they are not a skilled profitable operator 10 consecutive quarters and still no profit .
Shwz is skilled and will be profitable in a much shorter timeframe. We will see in a couple more days
Some more of the smaller private operators going out of business and, not a lot of upside for the public plays on a space that maybe, looked very attractive given their, really discounted valuations and interesting and differentiated and solid businesses, if you took out the challenging macro environment and that includes, one of my, one of the names I've long pitched is Lowell Farms.
I think Lowell (OTCQX:LOWLF) has a great business. It has a real brand. It's recognized amongst consumers and you even see it bear fruit with some of their licensing deals that they've announced. They have licensing deals with Schwazze. They have licensing deal with Ascend. There's a lot of interesting opportunity for Lowell, but I think that in the near term that that's a real headwind for both the publics and the privates in California
https://seekingalpha.com/article/4531453-cannabis-micromacro-picture-podcast-transcript
RS: I think "Survive and Advance" is a nice kind of guide for any cannabis company, right? It's like these, these years of pain and then hopefully we'll get some advancement.
JB: Yes, I think so. And I think, I think it's a, now is the time when that could come and it's probably better than the phrase that I used on our last podcast, which I actually think you guys used for a title that I've gotten some beef for, is I think, I said the earnings results shouldn't matter. And I think that people kind of thought I was being too flippant or something of that nature.
But yes, I do think we're still in a, some of these markets that Survive and Advance kind of characteristics. And but, I guess you can prove that there are ways to Survive and Advance and actually thrive in some challenging markets. You look at, amongst the kind of names that I'm frequently pushing, Schwazze is one that's proving out right now that you could say that make the same case that Colorado is so challenged and Colorado is a hard market, and here's a company that just threw good old fashioned boots on the ground. Execution is carving out a nice profit for themselves, generating money and doing well.
And, ultimately will either expand; they have expanded in New Mexico, but ultimately will expand further and scale up or will be a takeout. And either way that's a, probably presents a really interesting and solid outcome for investors in it. So, there is even in a state that's very challenging, there is a pathway to kind of differentiate itself and then the other option is kind of that Survive and Advance mentality.