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Medicine Man Technologies, Inc. (SHWZ)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 delivered modest top-line growth to $41.601M (+4% YoY) but profitability compressed: gross margin fell to 43.1% (vs 54.6% YoY) and operating income turned to a loss (-$2.709M), driven by New Mexico pricing pressure and higher medical mix in Colorado .
  • Adjusted EBITDA declined to $7.341M (17.6% of revenue) from $14.525M a year ago; cash from operations was -$3.700M as management invested in pricing, assortment, and customer experience to drive market share .
  • No formal quantitative guidance was issued; management emphasized ongoing optimization (store closures, cultivation consolidation) and regulatory tailwinds (DEA rescheduling removing 280E burden) as potential profitability drivers .
  • Stock reaction catalysts: accelerating NM enforcement reducing illicit competition and net new stores, consolidation of underperforming assets, and continued wholesale penetration growth (Lowell #1 pre-roll CO; Wana gummies momentum in NM) .

What Went Well and What Went Wrong

What Went Well

  • Colorado outpaced the market: Company sales +9% YoY in a market -10% YoY; wholesale penetration reached ~200 doors with flower wholesale pricing stabilizing around ~$750/lb .
  • Wholesale momentum: Lowell Herb Co pre-roll sales increased >3x QoQ in Colorado (#1 pre-roll in the state); Wana gummy sales up >2x QoQ in New Mexico; total door penetration surpassed 30% across both states .
  • Strategic retail execution: pricing/promotion, broader assortment, improved in-stock positions, and loyalty program enhancements to attract/retain customers; management highlighted “fast, friendly and knowledgeable service” driving outperformance in competitive markets .

What Went Wrong

  • Margin compression: gross margin fell to 43.1% (vs 54.6% YoY) due to New Mexico pricing pressure and a higher medical mix in Colorado; operating income swung to a -$2.709M loss (vs +$5.650M YoY) .
  • Higher operating expenses: OpEx rose to $20.643M (vs $16.199M YoY), partly because Q1 2023 benefited from a $3.9M payroll tax credit and ongoing ramp costs for 21 additional stores .
  • Cash burn: operating cash flow was -$3.700M in Q1 2024 as management leaned into price investments, third-party assortment to offset pricing, and training—temporarily depressing cash generation pending unit “bounce back” .

Financial Results

MetricQ1 2023Q4 2023Q1 2024
Revenue ($USD Millions)$40.001 $43.325 $41.601
Gross Profit ($USD Millions)$21.849 $7.034 $17.934
Gross Margin % (reported)54.6% 16.2% 43.1%
Gross Profit ($USD Millions, Adjusted)—$20.180 —
Gross Margin % (Adjusted)—46.6% —
Operating Income ($USD Millions)$5.650 -$16.242 -$2.709
Adjusted EBITDA ($USD Millions)$14.525 $10.953 $7.341
EPS Basic ($USD)-$0.01 -$0.43 -$0.24
EPS Diluted ($USD)-$0.06 -$0.43 -$0.24
Cash from Operations ($USD Millions)-$0.880 $3.452 -$3.700

Segment Revenue Breakdown ($USD)

SegmentQ1 2023Q4 2023Q1 2024
Retail$35,820,111 $39,592,779 $37,633,252
Wholesale$4,058,925 $3,730,749 $3,898,320
Other$121,900 $1,287 $69,421
Total$40,000,936 $43,324,815 $41,600,993

Balance Sheet & KPIs

KPIQ4 2023Q1 2024
Cash & Equivalents ($USD)$19,248,932 $13,151,317
Total Debt ($USD)$156,800,000 $159,700,000
Wholesale Door Penetration>27% FY end 2023 >30% (both states)
Lowell Pre-roll Momentum#2 CO in Q3’23 #1 CO; >3x QoQ
Wana Gummies Momentum48% growth in NM FY’23 >2x QoQ in NM
NM Store Base Context+76% stores YoY in Q3’23 ~690 stores (+31% YoY) as of Mar 31

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY/Q2+Not disclosed Not disclosed Maintained (no formal guidance)
Margins (Gross/Adj. EBITDA)FY/Q2+Not disclosed Not disclosed; management targets profitability improvement via pricing/ops optimization Commentary only
OpExFY/Q2+Not disclosed Focus on cost controls; sunset underperforming stores and consolidate cultivation Strategic actions
Tax rate / 280EFY/Q2+N/AManagement evaluating stance post-DEA rescheduling; may amend prior returns Potentially favorable over time

Note: No explicit numerical guidance ranges were provided in Q1 2024 materials (press release and call) .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2023 and Q4 2023)Current Period (Q1 2024)Trend
Pricing & PromotionsQ3: Investing to sharpen pricing/promotions amid NM competition . Q4: Continued retail strategy refinement, loyalty improvements .Intensified pricing/promotions to drive traffic, loyalty upgrades, improved assortment/in-stocks .Increasing focus
Wholesale Penetration & PortfolioQ3: 41% YoY wholesale growth; penetration into 7 of 10 largest operators; Lowell #2 CO . Q4: Stabilizing wholesale pricing .Penetration >30% doors; Lowell #1 CO (>3x QoQ), Wana >2x QoQ NM; ~200 CO doors .Strengthening
Colorado Market DynamicsQ3: Fierce competition; remodeling/relocations; medical expansion . Q4: 680+ recreational stores; need for elevated experience .680+ licenses; market -10% YoY; company +9% YoY; stabilized retail pricing; higher medical mix impacting margin .Competitive but company outperformance
New Mexico Proliferation & EnforcementQ3: Store count +76% YoY; aggressive pricing; regulatory push . Q4: Anticipated challenging market; cost optimization .~690 stores (+31% YoY); 72 closures in Q1; April saw net negative openings; enforcement increasing; expectation of net closures .Tightening regulation; improving backdrop
Operations OptimizationQ3: ERP implementation; inventory valuation adjustments expected . Q4: Emphasis on efficiencies across manufacturing/cultivation .Consolidate cultivation; eliminate underperforming stores (~3 closures announced); rightsize supply chain .Active restructuring
280E / ReschedulingNot a focus in Q3/Q4 documents.Management supportive of DEA rescheduling; evaluating tax position and potential amendments .Emerging tailwind

Management Commentary

  • “We delivered another period of revenue growth in Q1…sharpen our pricing and promotional efforts…enhancing the in-store experience…advancing our loyalty program…strengthened our wholesale business…surpassing 30% total door penetration.” — Forrest Hoffmaster, Interim CEO .
  • “Colorado…remains highly competitive…Although retail pricing has recently stabilized…we significantly outpaced the market as our sales were up 9%.” — Forrest Hoffmaster .
  • “We plan to consolidate cultivation facilities and eliminate underperforming stores…These efforts will better position us for long-term profitability.” — Forrest Hoffmaster .
  • “We’re pleased with the proposal by the DEA to reclassify cannabis…removal of 280E…we may be in a position to amend our tax returns for previous years.” — Justin Dye .

Q&A Highlights

  • Store optimization: Management expects ~3 Colorado store closures, with potential license reallocation rather than full shutdowns .
  • Wholesale strategy: Focus on both door expansion and portfolio depth; strong momentum with Lowell and Wana; additional product launches planned across form factors in coming quarters .
  • New Mexico store count outlook: Enforcement increasing; closures up 36% sequentially; April saw negative net new stores; management expects net closures to continue, improving market equilibrium .
  • Loyalty & customer metrics: CO loyalty penetration ~68% (vs ~37% a year ago); NM ~74%; efforts ongoing to stabilize platform and improve BI/promotional effectiveness .
  • Margin and cash flow: Medical mix impacted gross margin by ~190 bps; cash usage reflects price investments and third-party assortment to enhance experience; expected margin improvement as initiatives cycle in .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 2024 was unavailable for SHWZ at the time of this analysis; as a result, formal comparisons to consensus EPS and revenue cannot be provided. Values retrieved from S&P Global were unavailable due to mapping constraints.
  • Implication: With no consensus anchor, near-term estimate revisions will likely reflect observed margin compression and management’s restructuring actions, with potential medium-term upward bias if NM enforcement reduces competitive intensity and if rescheduling alleviates 280E headwinds .

Key Takeaways for Investors

  • Q1 showed resilient revenue growth amid margin headwinds; near-term profitability depends on pricing discipline, medical mix, and cost controls while wholesale momentum provides an offset .
  • Active portfolio optimization (store closures, cultivation consolidation) should improve unit economics and working capital efficiency over coming quarters .
  • Regulatory trajectory is supportive: NM enforcement is curbing oversupply/illicit market activity; DEA rescheduling could materially reduce 280E burden over time .
  • Wholesale expansion and brand strength (Lowell, Wana) are strategic levers for growth and margin resilience, particularly as pricing stabilizes in Colorado .
  • Cash use reflects intentional investments; watch for margin “bounce back” timelines and operating cash flow inflection as initiatives mature .
  • No numerical guidance was issued; monitor Q2 updates for tangible targets and progress on asset optimization and loyalty-led same-store performance .
  • Trading lens: Potential catalysts include announcements on store consolidation, evidence of NM net store reductions, and clarity on 280E/rescheduling treatment; risks include sustained pricing pressure and medical mix drag .