Executive Summary

Revenue grew 8% year over year to $46.7M and 10% sequentially; Adjusted EBITDA was $14.1M (30.2% margin), with positive operating cash flow of $6.9M, demonstrating resilient unit economics despite price pressure .
Gross margin compressed to 45.9% (from 52.0% a year ago) due to a reclassification true-up into COGS, lower-margin medical mix in Colorado, and lower initial gross margin on acquired Everest inventory; OpEx declined sequentially on integration progress, lifting operating income to $8.9M vs $5.0M in Q2 .
Wholesale sales rose 41% YoY, aided by New Mexico entry; loyalty and e-commerce metrics inflected positively (loyalty +16% q/q, e-commerce transactions +28% q/q), supporting traffic and mix initiatives .
No formal quantitative guidance; management flagged potential one-time inventory valuation adjustments tied to ERP rollout in Q4 and reiterated focus on integration, cash generation, and retail execution across 63 stores (CO 30 / NM 33) .

What Went Well and What Went Wrong

What Went Well
- Wholesale momentum: “41%” YoY wholesale growth as Schwazze expanded in NM and penetrated 7 of the 10 largest operators across CO/NM; Lowell Farms-licensed pre-roll is now #2 in CO and in 130+ doors .
- Retail footprint scaling with engagement: Store count reached 63; loyalty members rose 16% q/q with NM penetration reaching 78%; combined e-commerce transactions up 28% q/q, supporting traffic and conversion .
- Cost/ops playbook progress: Integration drove operating leverage; management highlights lean processes, SOPs, pre-roll automation, and outdoor biomass optimization; ERP rollout progressing to unlock working capital and margin benefits .
What Went Wrong
- Gross margin compression: Gross margin fell to 45.9% on reclassifications to COGS, increased medical mix in CO, and lower initial margin on acquired Everest inventory .
- Market headwinds in NM: Store count up 76% YoY in NM versus sales up 19% for the market, pressuring revenue per store and margins; illicit out-of-state product and enforcement lag cited as drags (improving per management) .
- Interest, taxes, and leverage: Despite $8.9M operating income, Q3 posted a net loss of $0.3M; total debt of $155.1M and income taxes payable of $18.3M remain watch points for cash utilization and valuation .

Financial Results

Headline comparisons

Metric	Q3 2022	Q1 2023	Q2 2023	Q3 2023
Revenue ($USD Millions)	$43.191	$40.001	$42.375	$46.747
Gross Profit ($USD Millions)	$22.476	$23.033	$24.519	$21.438
Gross Margin %	52.0%	58.0%	57.9%	45.9%
Income from Operations ($USD Millions)	$11.115	$5.650	$4.957	$8.924
Net Income (Loss) ($USD Millions)	$1.809	$1.745	$(6.608)	$(0.322)
Diluted EPS ($)	$—	$(0.06)	$(0.15)	$(0.03)
Adjusted EBITDA ($USD Millions)	$15.860	$14.525	$13.814	$14.119
Adjusted EBITDA Margin %	36.7%	36.3%	32.6%	30.2%
Operating Cash Flow ($USD Millions)	$10.298	$(0.880)	$2.683	$6.946

Notes: Gross margin pressure in Q3 reflects reclassification true-up into COGS, higher medical mix in CO, and lower initial margin on Everest inventory; sequential OpEx reduction supported operating income expansion .

Segment revenue mix

Segment Revenue ($USD Millions)	Q3 2022	Q1 2023	Q2 2023	Q3 2023
Retail	$39.760	$35.820	$38.099	$41.952
Wholesale	$3.335	$4.059	$4.274	$4.701
Other	$0.096	$0.122	$0.002	$0.094
Total Revenue	$43.191	$40.001	$42.375	$46.747

KPIs and balance sheet highlights

KPI / Balance Item	Q2 2023	Q3 2023
Store count (total)	62 (company commentary)	63 (CO 30 / NM 33)
Loyalty members (total)	+17% q/q new members	~477k total; NM ~144k (+55% q/q); loyalty penetration 63.3%
E-commerce activity	Penetration +45% NM, +15% CO vs Q1	Transactions +28% q/q across NM and CO
Wholesale share	—	Sells into 7 of top 10 operators in CO/NM
Cash & Equivalents ($M)	$19.9	$19.6
Total Debt ($M)	$155.4	$155.1
Operating Working Capital (non-GAAP)	$10.0	$0.6
Income Taxes Payable ($M)	$14.11	$18.28

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Formal revenue/margin/OpEx guidance	FY/Q4 2023	None disclosed	None disclosed	Maintained (no formal guidance)
Inventory valuation adjustments	Q4 2023	Not previously specified	Expect one-time inventory valuation adjustments tied to ERP implementation as year closes	New disclosure
ERP rollout timing	Late Q1–Early Q2 2024	Not previously specified	All facilities onto one platform by late Q1/early Q2 2024	New timing detail
Strategy/Capital allocation	2024	Integration and lean ops focus	Unchanged: integrate acquisitions, drive cash flow, evaluate footprint/brands	Maintained narrative

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1/Q2 2023)	Current Period (Q3 2023)	Trend
Pricing/macro	Broad price pressure; CO wholesale stabilization emerging; loyalty +17% q/q new members in Q2	CO flower AMR rose 7% q/q ($703→$750); retail pricing not yet reflecting that; CO competitive promos stabilizing	Stabilizing wholesale; cautious retail
New Mexico regulatory/enforcement	License proliferation; price pressure; working with regulators	Enforcement improving against illicit out-of-state product; long-term bullish, near-term pressure on per-store revenue	Slightly improving backdrop
Integration/ERP	Cost optimization programs launched; off-premise distribution efficiencies	ERP rollout to complete late Q1/early Q2 2024; expect one-time inventory adjustments; working capital benefits ahead	Execution phase; near-term noise
Wholesale expansion	CO stabilization; NM entry beginning	Wholesale +41% YoY; now selling into 7 of 10 largest operators in CO/NM; Lowell #2 CO pre-roll	Strengthening
Retail format innovation	Remodeling and banner conversions (e.g., Smokey’s to Star Buds)	Launched “store-within-a-store” (Star Buds + Standing Akimbo) in Fort Collins; early feedback strong	Positive early traction
Loyalty/e-commerce	NM e-comm +45%, CO +15% vs Q1; new member growth	Loyalty ~477k total; NM ~144k; 63.3% penetration; e-comm transactions +28% q/q	Engagement building
M&A vs optimization	Active M&A; “go deep” in CO/NM	Focus on realizing synergies over 12–15 months; remain open to strategic deals	Shift to digestion

Management Commentary

“We continued to increase our retail footprint during the quarter to a total of 63 stores in Colorado and New Mexico… We also generated a 41% increase in our wholesale business year-over-year… Schwazze now sells into 7 of the 10 largest operators in Colorado and New Mexico” — CEO, Nirup Krishnamurthy .
“Gross margin [decline] was primarily driven by… true-up expense reclassification from SG&A into cost of goods sold… increased lower margin medical sales mix in Colorado and lower initial gross margin from… Everest inventory” — CFO, Forrest Hoffmaster .
“We are in the process of optimizing our inventory through an ERP implementation… which we expect will lead to one-time inventory valuation adjustments as we close out the year” — CFO .
“Looking ahead to 2024, our strategy remains unchanged: leverage our operating playbook and further integrate our acquired assets to drive customer acquisition and sales across our expanded footprint” — CEO .
“Colorado… AMR increased 7% from $703/lb in Q2 to $750/lb in Q3… market is starting to stabilize” — CEO .

Q&A Highlights

New Mexico outlook and enforcement: Management voiced disappointment with illicit out-of-state product but sees improving enforcement; strategy focuses on assortment, pricing/promo, and customer experience; maintains long-term bullish stance on NM .
Colorado market stabilization: Cultivation licenses down from ~855 to ~655; wholesale pricing stabilizing; competitors pulling back on extreme pricing; Schwazze pursuing licenses in new jurisdictions (e.g., Broomfield) .
Integration and synergy timing: Full synergy realization targeted within 12–15 months post-acquisition; Everest early integration milestones hit; standardized SOPs and lean practices implemented .
ERP/working capital: ERP platform consolidation expected to free working capital and improve margin; rollout completion targeted for late Q1/early Q2 2024; expect inventory valuation adjustments during implementation .
Sector view and catalysts: Management bullish on potential rescheduling in mid-2024 and broader capital access; expects multiple expansion for cannabis operators over time .

Estimates Context

S&P Global/Capital IQ quarterly consensus estimates for SHWZ were not available in our system for Q3 2023; therefore, we cannot assess beats/misses versus Wall Street consensus for revenue, EPS, or EBITDA this quarter. Values would ordinarily be retrieved from S&P Global.

Key Takeaways for Investors

Sequential strengthening with disciplined execution: Revenue +10% q/q and operating income nearly doubled q/q as integration drove OpEx leverage; positive OCF ($6.9M) underlines cash generation focus .
Margin compression appears transitory: Drivers include accounting reclassification to COGS, initial Everest inventory margin, and medical mix; ERP/assortment/pricing workstreams should support margin normalization over time .
Wholesale and brand distribution are bright spots: +41% YoY wholesale, #2 pre-roll in CO, and penetration into 7 of top 10 operators suggest durable channel strength that can offset retail price pressure .
Watch near-term Q4 noise: Management flagged potential one-time inventory valuation adjustments as ERP goes live; short-term earnings volatility possible even as strategic benefits accrue .
Balance sheet watch items: Total debt ($155.1M) and taxes payable ($18.3M) merit monitoring as cash is redeployed to integration and growth; working capital compressed in Q3 .
Macro/regulatory setup improving at the margin: CO wholesale price stabilization and NM enforcement should aid pricing and mix; sector-level rescheduling and capital access could drive valuation rerating longer term .
Trading setup: Near-term catalysts include Q4 ERP transition outcomes and New Mexico regulatory enforcement progress; medium-term thesis centers on operating playbook replication, loyalty/e-comm engagement, and wholesale expansion .

Appendix: Additional Data Points

Retail mix: Retail revenue comprised ~$41.952M of Q3 revenue; wholesale ~$4.701M; other ~$0.094M .
Cash and equivalents stood at $19.6M; total debt $155.1M as of 9/30/23 .
Loyalty metrics: ~477k total loyalty members; NM ~144k; loyalty penetration 63.3% in Q3 .

Sources: SHWZ Q3 2023 8-K and press release ; Q3 2023 earnings call transcript –; Q2 2023 8-K and press release –; Q2 2023 call –; Q1 2023 8-K and press release –.

Medicine Man Technologies, Inc. (SHWZ)·Q3 2023 Earnings Summary