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Medicine Man Technologies, Inc. (SHWZ)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 delivered sequential growth across revenue, gross profit, Adjusted EBITDA and wholesale penetration; total revenue rose 2% year-over-year to $43.2M, while Adjusted EBITDA increased to $9.0M from $7.3M in Q1 .
  • Margin compression persisted: gross margin fell to 44.0% (vs. 54.4% YoY) due to pricing investments, third‑party mix in NM, and higher medical mix in CO; operating expenses increased on added stores and professional fees tied to BF Borgers remediation .
  • Strategic actions: closed CO distribution center and shuttered non‑plant wholesale (Big Tomato); eliminated three underperforming CO stores; extended $32M of debt maturities to Nov 2025; NM wholesale penetration reached 35%, CO 34% .
  • Management expects stronger profitability in H2 2024 and plans to amend prior tax returns contingent on 280E relief (~$15M cash flow benefit); re‑audit in progress with intent to relist from OTC Expert Market to OTCQX post-filings (catalyst for liquidity) .

What Went Well and What Went Wrong

What Went Well

  • “We made solid progress on our growth and optimization initiatives in Q2 and generated sequential quarterly growth across all key financial metrics while advancing our retail strategy” — Interim CEO Forrest Hoffmaster .
  • Outperformed CO market: “generated 6% growth in a market that declined 11%,” supported by pricing, assortment, loyalty and in-store experience enhancements .
  • Wholesale momentum: penetration increased to ~34% in CO and 35% in NM; NM wholesale revenue +16% QoQ with catalog expansion (Lowell pre‑rolls, Wana gummies) .

What Went Wrong

  • Gross margin fell to 44.0% (from 54.4% YoY), driven by retail pricing investments, expanded third‑party mix in NM, and higher medical sales mix in CO; Adjusted EBITDA margin declined YoY .
  • Operating expenses rose to $21.8M (vs. $18.1M YoY) from four‑wall SG&A of five additional stores and nonrecurring professional fees tied to BF Borgers review; loss from operations was $(2.7)M .
  • Net loss of $(13.9)M (vs. $(6.6)M YoY); delayed filings forced move to OTC Expert Market, pressuring liquidity and share price; management aims to complete re‑audit and relist to OTCQX .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Revenue ($USD Millions)$42.375 $41.601 $43.236
Gross Profit ($USD Millions)$23.039 $17.934 $19.044
Gross Margin (%)54.4% 43.1% 44.0%
Operating Expenses ($USD Millions)$18.082 $20.643 $21.788
Income (Loss) from Operations ($USD Millions)$4.957 $(2.709) $(2.744)
Net Income (Loss) ($USD Millions)$(6.608) $(16.053) $(13.937)
Diluted EPS ($)$(0.15) $(0.24) $(0.20)
Adjusted EBITDA ($USD Millions)$13.814 $7.341 $9.032
Adjusted EBITDA Margin (%)32.6% 17.6% 20.9%
Operating Cash Flow ($USD Millions)$2.683 $(3.700) $(0.108)

Segment revenue breakdown:

Segment Revenue ($USD)Q2 2023Q1 2024Q2 2024
Retail$38,098,957 $37,633,252 $39,114,405
Wholesale$4,274,483 $3,898,320 $3,994,466
Other$1,660 $69,421 $126,877
Total$42,375,100 $41,600,993 $43,235,748

Key KPIs and balance metrics:

KPIQ1 2024Q2 2024
NM store count34 (Las Cruces opening, Everest banner) 35 (Bernalillo opening, R. Greenleaf banner)
Wholesale penetration – CO~30% of doors ~34% of doors
Wholesale penetration – NM~30% of doors ~35% of doors
Cash & equivalents ($USD Millions)$13.2 $12.3
Total debt ($USD Millions)$159.7 $163.4
CO market vs SHWZ sales YoYCO market −11% vs SHWZ +6% Continued outperformance cited

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Profitability trajectoryH2 2024Not specifiedManagement expects stronger levels of profitability in H2 2024 Raised qualitative outlook
Wholesale penetration targetNear term (Q3 2024)Not specified40% target; may increase after Q3 New target
Restructuring savingsOngoingNot specified~$7M annualized savings from actions (store closures, DC closure, ops streamlining) New quantified savings
Debt maturitiesThrough Nov 2025Due Feb 2025Extended $15M Altmore loan and $17M RGA note to Nov 2025 Extended
Tax strategy (280E)Post-reschedulingNot specifiedPlan to amend returns; ~+$15M expected free cash flow impact if 280E relief realized New framework
Listing statusPost-filingsOTC Expert MarketAim to complete re‑audit and relist to OTCQX; ~1 month post application timeline Path to relisting

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2024)Current Period (Q2 2024)Trend
Pricing & promotionStrategic discounting to compete; loyalty platform stabilization needed Continued pricing investments; improved loyalty offerings; sequential traffic gains Ongoing refinement; positive momentum
Wholesale penetrationCO ~30% doors; NM >200 doors; catalog expansion (Lowell, Wana) CO 34%, NM 35%; NM wholesale +16% QoQ; new SKUs Increasing penetration
Supply chain optimizationAlign manufacturing/grow with demand; ERP, LED lights planned New VP of Cultivation; LED implementation; SKU/facility rationalization Execution advancing
Store network actionsEvaluating closures; 3 CO closures contemplated Closed 3 CO stores; quarterly review continues; no immediate further closures Pruning complete; monitor
Distribution/logisticsCO DC touted historically CO DC closed; NM DC capacity optimization underway Streamlining to free working capital
Regulatory (NM)Increased enforcement; net closures, store count decline began Enforcement intensified; 71 closures in Q2; net new openings slowing Tailwind building
Capital structureFY23 debt $156.8M; cash $19.2M Debt $163.4M; cash $12.3M; extended maturities; exploring refinancing/equity Flexibility improved
Listing/auditRoutine filings Re‑audit with Baker Tilly; target OTCQX relisting post-filings Resolution in progress
280E/reschedulingPositive outlook; evaluating stance Planning amended returns; ~$15M FCF benefit expectation Increasing confidence

Management Commentary

  • “We generated sequential quarterly growth across all key financial metrics while advancing our retail strategy… increased store traffic and market share expansion in both Colorado and New Mexico” — Forrest Hoffmaster .
  • “We outpaced the [Colorado] market on a year-over-year basis and generated 6% growth in a market that declined 11%” — Forrest Hoffmaster .
  • “We grew revenue 9% sequentially [in NM] compared to the state’s 2%, demonstrating the effectiveness of our operating playbook” — Forrest Hoffmaster .
  • “Our recent debt restructuring provides us with the financial flexibility to execute our strategic growth initiatives in Colorado and New Mexico” — Forrest Hoffmaster .
  • “We’re working expeditiously to complete the re‑audit… and uplift back to the OTCQX… which we believe will drive liquidity” — Justin Dye .

Q&A Highlights

  • Relisting/audit: Management is re‑auditing FY2023 and Q1/Q2 2024 with Baker Tilly; intends to relist to OTCQX about one month after application once filings are complete .
  • Wholesale targets and shelf share: Internal penetration target 40% (likely to raise); focus on deeper shelf presence via private label and third‑party licensing .
  • DC closure rationale: Prioritized retail-forward execution, freed working capital, leveraged mature CO logistics; NM DC capacity optimization ongoing .
  • Pricing dynamics: NM flower price/gram softening ($5.33 vs $5.84 prior quarter) with modest competitive reactions; micro‑market pricing precision emphasized .
  • M&A posture: Near-term focus on operating discipline; opportunistic tuck-ins and new locations possible once core improvements sustain .
  • Store strategy: Long-term ambition (e.g., CO store count growth) intact but timeline elongated; immediate closures not expected beyond Q2 actions .
  • Debt & capital: Extended maturities to Nov 2025; exploring refinancing and equity options as operations improve .
  • 280E stance: Planning amended returns; management estimates ~+$15M FCF benefit from rescheduling impact .

Estimates Context

  • Wall Street consensus (S&P Global/Capital IQ) for SHWZ was unavailable due to a mapping issue; as a result, estimate comparisons (EPS/Revenue/EBITDA vs consensus) could not be provided at this time [GetEstimates error].
  • Given the lack of consensus data, we anchor assessment on reported actuals; once S&P Global mapping is available, we recommend revisiting beat/miss analysis.

Key Takeaways for Investors

  • Sequential improvement with disciplined pruning and cost actions is taking hold: revenue, gross profit and Adjusted EBITDA improved QoQ, while wholesale penetration rose in both states .
  • Margin headwinds likely persist near-term given pricing investments and mix; however, restructuring (~$7M annualized savings) and supply chain optimization should underpin H2 margin recovery .
  • NM regulatory enforcement (and net store closures) is a tailwind for unit economics; SHWZ’s market share gains (+9% sequential revenue vs state +2%) highlight tactical advantages .
  • Debt maturity extensions to Nov 2025 provide runway to pursue refinancing; cash of $12.3M and improving operations support flexibility, but leverage remains elevated ($163.4M total debt) .
  • A successful re‑audit and relisting to OTCQX could catalyze improved liquidity and investor access; management plans active IR post‑relisting (near-term stock narrative driver) .
  • 280E relief (if realized) is a major upside catalyst (~$15M FCF impact) with potential tax refunds from amended filings; monitor regulatory timing and company updates .
  • Trading implication: favor catalysts tied to filings progress and NM regulatory developments; medium‑term thesis rests on retail execution, wholesale expansion, and operating discipline translating to margin stabilization and EBITDA growth .