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.
AI
