Schwazze SHWZ stock is a cannabis stock that will light up the board when cannabis stocks take off. And, SHWZ is on of the best cannabis stocks – My Top pIcks. I wanted to solidify the SHWZ stock forecast because the company has expanded so much, so rapidly over the past several months. Right now, Schwazze has some 29 dispensaries but, they should close on an additional 10 more this year. That being said, the SHWZ stock forecast will be obsolete immediately as more revenue potential shows up quickly.
I will continue to update SHWZ stock forecast as the quarters progress; something I have been getting far more efficient at over the past few weeks and months. That being said, I want to reiterate that these models are exactly that, models. Investing is also a popularity contest. And, just as equally that cannabis stocks can be unpopular and undervalued, very soon I expect that these same cannabis stocks will be over-popular and over valued. Do the math accordingly with the SHWZ stock forecast.
Now, let’s dig into even more big opportunities:
Lowell Farms
Another of my Top Picks is Lowell Farms LOWLF stock. Lowell finds themselves with a new strategic partnership where Shwazze will be selling Lowell Farms products in their dispensaries. Schwazze will grow, process, and sell Lowell Farms pre-rolls. This is big for both Schwazze and Lowell Farms as Lowell puts out an excellent product.
The thing with Lowell Farms is that it has such a huge social media presence. The way you get a big social media presence is that a lot of people talk about your products. I am not one who looks to product quality or my likes or dislikes because what I like may not be an effective product to sell. I let the dollar votes take care of that side of the business. If the masses like a product, that tells me that a lot of people have “voted” and the product will ultimately be a success versus other products.
That being said, Lowell will be big from this. Lowell Farms also has a deal whereupon Ascend Wellness AAWH stock, sells Lowell products in its dispensaries and, without lifting much of a finger, Lowell Farms continues to get a cut of the profits. Lowell will likely continue to do what it does exceptionally well… social media marketing, of course.
These types of deals benefit in many ways and the fact that branding and marketing are taken care of by Lowell. And, both Schwazze & Ascend Wellness get a top-quality brand that they can sell in their stores. And, production of this is done inside facilities that are already licensed. Capacity utilization increases for Schwazze & Ascend Wellness, and that means better margins for both of these companies.
And… that could lead into an interesting M&A deal into the future.
SHWZ Stock as an Acquisition Target
Shwazze has done an absolute bonanza of M&A activity the past year; 2021. I expect that pace will continue. Schwazze is now a regional MSO and one of the biggest if not the biggest in both Colorado & New Mexico. There are other deals that will follow through this year coming, and the pace looks dizzying.
I have said many times that there is going to be an absolute ton of M&A activity over the next several years in cannabis stocks. We continually see this. And, we also see strategic partnerships occur all of the time; Lowell Farms deal is one example.
That being said, I fully expect that Schwazze to continue with its M&A activity and I expect they will grow and develop along with that.
Hypothetically speaking…
But, I also suspect that a far bigger player could easily step in and make them an offer they cannot refuse. What if, and this is purely hypothetical, what if Trulieve were to show up and decide they finally wanted to be in both Colorado & New Mexico? This is easy.
If not Trulieve, why not Ascend Wellness? Or, TerrAscend?
To give you an idea of how big I expect M&A activity to be in the next several years, I currently have 108 cannabis stocks that I follow on Cannabis Investing Newsletter. Within about 24-30 months, I can easily envision there being only about 75 left standing.
I can see M&A activity happening both ways with Schwazze. Investing in SHWZ stock should mean you both accept further growth and expansion with new acquisitions, as well as the possibility that someone very big steps in and acquires SHWZ stock.
Schwazze SHWZ Holdings Financial Data
Numbers were good for Schwazze and the company continues to grow. Expect that as the recent acquisitions and deals solidify you will see continued increases in revenues and big moves maybe up or down with margins and costs. But, ultimately, I think this is a company to be reckoned with.
Schwazze Gross Profits
While Schwazze printed record revenue for the quarter, the big gains lately were driven from M&A activity. We will see even more gains as the newly flipped to adult-use state of New Mexico will see increases in revenue at existing dispensaries. This is something I like to key in on because this is organic growth that existing dispensaries will receive without new input costs.
As for gross profits and gross margins, Schwazze needs to generate more profits from gross margins. But, if there is one thing I have learned after reviewing cannabis stocks for some time, growing excellent cannabis, inexpensively, and consistently is difficult. Still, other cannabis stocks have achieved this.
This becomes the slingshot that propels SHWZ stock. As Schwazze grows into its foundation, they will get better and better. If there is an increase in revenue of about 50% from organic growth at existing facilities, and Schwazze can improve gross margins at the same time by about 10%, this will drive profits. That, in turn, will drive SHWZ stock over the long term. So, look toward this metric as the rationale for what will help drive SHWZ stock. As gross margins increase, so will profits. That will attract more investors.
Schwazze Operating Profits
One of the things that I have been curious about is the State of Colorado. Colorado is one of the most mature, if not the most mature cannabis adult-use legal state there is. How much more growth will we see out of the state of Colorado? This is the one thing that I wonder because it really tells the story of what will happen in all of the other states over the next few years.
If there is enough continuous growth in Colorado, this will propel revenue higher for the cannabis companies in that state. That will enable the rationale for operating costs at the levels they are now. So, if companies can continue to grow in these more mature states, this will help push revenues. I am using this as a measuring stick for Schwazze; this is important.
It is important to note that there was a large surge in cannabis sales with COVID as bars were closed and people consumed cannabis at home. Bars are now reopening and we have seen revenue declines in cannabis sales across the board. Expect moderation and mellowing out of these numbers, but eventually, cannabis revenue sales will resume higher again, albeit at a slower pace.
Schwazze EBITDA & Net Profits
Profitability picture here for Schwazze will continually change as Schwazze evolves. There will be changes to the SHWZ share count with new acquisitions. I will be continually updating the SHWZ stock forecast as new developments move forward.
For now, the lower EBITDA/Revenue rate is likely to see moves back upward. I used. modest EBITDA/Revenue rate and increased this slightly every year with the SHWZ stock forecast below.
Schwazze Cash On Hand
One of the things I look toward with these growing and expanding companies is their capitalization and how well any one cannabis company is with cash on hand. Schwazze is expanding with new dispensaries being acquired. These M&A deals require cash to fund. Also, if Schwazze is taking on a cannabis company that is not profitable, cash will be needed to fund future operations. Schwazze has plenty of cash on hand, and they would have no problems accessing capital if there was a deal needed to be done which required more cash.
I look toward the new additions throughout this coming year to see what shape Schwazze will be in with margins and net earnings. The expansions are likely to add to the bottom line eventually. There are expansions where acquiring dispensaries throughout Colorado will enable exist labels to be sold in new dispensaries, expanding Schwazze’s foundation and driving SHWZ stock.
The long term buildup of what Schwazze is putting together will mean bigger revenue & profit potential down the road. An investor would need to look at Schwazze as a long term opportunity for a growth stock and value investment.
For now, Schwazze has plenty of cash on hand.
Schwazze Total Equity
I always look toward total equity as that metric that tells me if management is creating value for me. From previous acquisitions, there have been increases in total equity. But, increases in total equity that come from acquisitions from all-stock deals come at the expense of more shares. What we would be looking for are organic increases in total equity and they continuously move higher and higher with static share count.
Nonetheless, Schwazze is increasing its foundation and this will be supportive of future revenue and profits. Equity is what drives a company’s ability to create revenue, and by extension, profits.
Still, with as many deals in the future as Schwazze has, and with the industry expanding as it does, Schwazze is going to continue to grow and SHWZ stock will push higher over a very long period of time.
Schwazze SHWZ Stock Forecast
Schwazze SHWZ Stock DCF
| Assumptions | |
|---|---|
| Tax Rate | 25% |
| Discount Rate | 12.500% |
| Perpetural Growth Rate | 25.0% |
| EV/EBITDA Mulltiple | 35.0x |
| Transaction Date | September 1, 2022 |
| Fiscal Year End | 12/31/22 |
| Current Price | $1.800 |
| Shares Outstanding | 54,825,801 |
| Debt | $170,700,000 |
| Cash | $39,200,000 |
| Market Value | |
|---|---|
| Market Cap | $98,686,442 |
| Plus: Debt | $170,700,000 |
| Less: Cash | $39,200,000 |
| Enterprise Value | $230,186,442 |
| Equity Value/Share | $1.8000 |
| Date | September 1, 2022 | Dec 31, 2023 | Dec 31, 2024 | Dec 31, 2025 | Dec 31, 2026 | Dec 31, 2027 | Dec 31, 2027 | |
|---|---|---|---|---|---|---|---|---|
| Time Periods | 1 | 2 | 3 | 4 | 5 | |||
| Year Fraction | 1.33 | 1.00 | 1.00 | 1.00 | 1.00 | |||
| EBIT | $68,750,000 | $90,000,000 | $113,750,000 | $130,000,000 | $157,500,000 | |||
| Less: Cash Taxes | $17,187,500 | $22,500,000 | $28,437,500 | $32,500,000 | $39,375,000 | |||
| Plus: D&A | $8,750,000 | $10,500,000 | $12,250,000 | $14,000,000 | $15,750,000 | |||
| Less: Capex | $12,500,000 | $15,000,000 | $17,500,000 | $20,000,000 | $22,500,000 | |||
| Less: Changes in NWC | -$6,250,000 | -$7,500,000 | -$8,750,000 | -$10,000,000 | -$11,250,000 | |||
| Unlevered FCF | 1 | $54,062,500 | $70,500,000 | $88,812,500 | $101,500,000 | $122,625,000 | ||
| (Entry)/Exit | -$230,186,442 | $2,418,750,000 | ||||||
| Transaction CF | - 0 | $72,083,333 | $70,500,000 | $88,812,500 | $101,500,000 | $122,625,000 | $2,418,750,000 | |
| Transaction CF | -$230,186,441 | $72,083,333 | $70,500,000 | $88,812,500 | $101,500,000 | $122,625,000 | $2,418,750,000 |
| Rate of Return | |
|---|---|
| Target Price Upside | 1,380% |
| Internal Rate of Return (IRR) | 70% |
| Market Value vs Intrinsic Value | |
| Market Value | $1.80 |
| Upside | $24.84 |
| Intrinsic Value | $26.64 |
The first thing I did with the SHWZ stock forecast was put together the revenue run-rate. I looked at several different analyst projections and they all seemed to target a certain amount over the next two years. I used a progressive approach.
Then, I took current margins and gradually increased them over the course of the next five years. Then, I lowered them because I felt the number came in too high.
But… and I stress this: Everything is obsolete. This is not a bad thing. This is owed to the fact that Shwazze is expanding and the new numbers will come in and I will need to make adjustments to the SHWZ stock forecast. I will do so as these metrics come in over the next few quarters.
But, this working model gives a solid foundations to work with in understanding where SHWZ stock could be.
Is Schwazze SHWZ Stock A Good Investment?
First, I obviously like SHWZ stock because this is a company that has tremendous upside potential. And, with the fact that a lot of cannabis stocks are beaten down so heavily, this is an opportunity to really take advantage from a long term perspective, as value investors.
If a value investor were to look at this company as an undervalued cannabis stock, that is also simultaneously a growth stock, getting involved in SHWZ stock at this level makes a tremendous amount of logic.
At the same time, the days of hyper-stock spikes in cannabis stocks are behind us. Don’t expect that to occur any time soon… except, that probably is not true, either. Cannabis Federal Legalization is just around the corner as the Senate version of this bill is likely to hit sometime soon. So, very likely, cannabis stocks will see a continued move upward very shortly.
Then, my expectation is that as cannabis companies start drifting toward up-listing on Nasdaq, this will draw in more and more investors with far bigger dollars, continually driving up and supporting cannabis stocks.
I see an investment in SHWZ stock as a long term opportunity for value investors looking for high growth stocks that are significantly undervalued.
Schwazze Financial Statements
Schwazze SHWZ Stock Financial Statements
| March 2018 | June 2018 | September 2018 | December 2018 | March 2019 | June 2019 | September 2019 | December 2019 | March 2020 | June 2020 | September 2020 | December 2020 | March 2021 | June 2021 | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues | $1.2 | $1.4 | $3.6 | $1.6 | $2.0 | $1.8 | $3.5 | $3.3 | $3.2 | $5.4 | $7.4 | $7.9 | $26.8 | $30.7 | |
| Cost of Goods | $0.4 | $0.4 | $0.5 | $1.4 | $1.6 | $1.1 | $2.8 | $2.1 | $2.1 | $3.1 | $4.6 | $7.3 | $12.1 | $15.8 | |
| Gross Income | $0.8 | $1.0 | $3.1 | $0.2 | $0.4 | $0.7 | $0.7 | $1.2 | $1.1 | $2.3 | $2.8 | $0.6 | $14.7 | $14.9 | |
| Gross Profit Margin | 66.7% | 71.4% | 86.1% | 12.5% | 20.0% | 38.9% | 20.0% | 36.4% | 34.4% | 42.6% | 37.8% | 7.6% | 54.9% | 48.5% |
| March 2018 | June 2018 | September 2018 | December 2018 | March 2019 | June 2019 | September 2019 | December 2019 | March 2020 | June 2020 | September 2020 | December 2020 | March 2021 | June 2021 | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues | $1.2 | $1.4 | $3.6 | $1.6 | $2.0 | $1.8 | $3.5 | $3.3 | $3.2 | $5.4 | $7.4 | $7.9 | $26.8 | $30.7 | |
| Total Operating Expenses | $0.8 | $0.9 | $1.8 | $1.3 | $2.3 | $4.0 | $3.5 | $6.9 | $5.2 | $8.7 | $6.4 | $9.4 | $8.7 | $10.5 | |
| Operating Efficiency | 66.7% | 64.3% | 50.0% | 81.3% | 115.0% | 222.2% | 100.0% | 209.1% | 162.5% | 161.1% | 86.5% | 119.0% | 32.5% | 34.2% | |
| Operating Income | $0.0 | $0.1 | $1.3 | -$1.1 | -$1.9 | -$3.3 | -$2.8 | -$5.7 | -$4.1 | -$6.4 | -$3.6 | -$8.8 | $6.0 | $4.4 |
| March 2018 | June 2018 | September 2018 | December 2018 | March 2019 | June 2019 | September 2019 | December 2019 | March 2020 | June 2020 | September 2020 | December 2020 | March 2021 | June 2021 | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Interest Expense | $0.0 | $0.0 | $0.0 | $0.0 | $0.0 | -$0.2 | $0.0 | $0.0 | $0.0 | $0.0 | $0.0 | -$0.1 | -$1.0 | -$1.7 | |
| Other Non-Operating Income | $0.0 | $0.0 | $0.0 | $0.0 | -$0.7 | -$4.9 | -$0.2 | $2.1 | $1.2 | -$0.3 | $0.7 | -$0.3 | -$1.3 | $1.9 | |
| EBT Inc. Unusual Items | $0.0 | $0.2 | $1.3 | -$1.1 | -$2.6 | -$8.5 | -$2.9 | -$3.7 | -$2.9 | -$6.7 | -$2.9 | -$9.2 | -$3.7 | $4.6 | |
| EBT Excl. Unusual Items | $0.0 | $0.2 | $5.0 | -$3.6 | -$2.9 | -$8.8 | -$1.8 | -$4.0 | -$1.4 | -$6.6 | -$2.9 | -$9.4 | -$3.9 | $4.6 | |
| Tax | $0.0 | $0.0 | $0.0 | $0.6 | $0.0 | $0.0 | $0.0 | -$0.6 | $0.0 | $0.0 | $0.0 | -$0.9 | $0.5 | $0.2 | |
| Earnings From Cont. Ops. | $0.0 | $0.2 | $5.0 | -$4.2 | -$2.9 | -$8.8 | -$1.8 | -$3.4 | -$1.4 | -$6.6 | -$2.9 | -$8.5 | -$3.6 | $4.4 |
| March 2018 | June 2018 | September 2018 | December 2018 | March 2019 | June 2019 | September 2019 | December 2019 | March 2020 | June 2020 | September 2020 | December 2020 | March 2021 | June 2021 | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Income | $0.0 | $0.2 | $5.0 | -$4.2 | -$2.9 | -$8.8 | -$1.8 | -$3.4 | -$1.4 | -$6.6 | -$2.9 | -$8.5 | -$3.6 | $4.4 | |
| Diluted EPS | $0.00 | $0.01 | $0.18 | -$0.24 | -$0.10 | -$0.30 | -$0.05 | -$0.10 | -$0.03 | -$0.16 | -$0.07 | -$0.21 | -$0.09 | $0.08 | |
| Dividend Per Share | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | |
| EBITDA | $0.0 | $0.2 | $1.4 | -$1.0 | -$1.8 | -$3.3 | -$2.7 | -$5.7 | -$4.1 | -$6.3 | -$3.4 | -$8.7 | $0.3 | $7.5 |
| March 2020 | June 2020 | September 2020 | December 2020 | March 2021 | June 2021 | ||
|---|---|---|---|---|---|---|---|
| Cash On Hand | $0.0 | $5.4 | $3.0 | $1.2 | $23.0 | $21.1 | |
| Free Cash Flow | $0.0 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | |
| Total Assets | $0.0 | $36.0 | $32.7 | $70.7 | $181.0 | $183.4 | |
| Total Liabilities | $0.0 | $8.5 | $7.0 | $28.9 | $71.7 | $71.4 | |
| Total Equity | $0.0 | $27.5 | $25.7 | $41.8 | $109.3 | $111.9 | |
| Cash Debt Ratio | 0.0% | 63.5% | 42.9% | 4.2% | 32.1% | 29.6% | |
| Book Value Per Share | $0.0 | $0.66 | $0.62 | $0.99 | $2.58 | $2.64 |
SHWZ just bought 2 more location in Co
https://ir.schwazze.com/news-releases/news-release-details/schwazze-signs-definitive-documents-acquire-certain-assets
Perspective on the new Washington Park location
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=169955364
Schwazze marketing executive pinpoints brand identity
https://mjbizdaily.com/schwazze-marketing-executive-pinpoints-brand-identity/
NOBLE CAPITAL 09/16/2022SchwazzeExpanding in ColoradoAnother Acquisition. Wednesday, Schwazze announced the Company has signed definitive documents to acquire certain assets of Lightshade Labs LLC, which contains two dispensaries located at 503 Havana St. in Aurora and 2215 E. Mississippi Ave. in Denver’s vibrant Washington Park neighborhood, which includes the University of Denver. The proposed acquisition is for $2.75 million in cash with an expected closing in the first quarter of 2023. Operating financials were not providedThe Dispensaries. Both dispensaries are highly rated by Leafly and Weedmaps, with the Aurora location receiving 4.9 out of 5.0 ratings from each and the Washington Park storereceiving 4.9 and 4.3 scores. With Schwazze already operating dispensaries about 2 miles away from each location, the acquisitions continue to fill-in existing white space on the map, in our view.Detail on Lightshade Labs. Founded in 2011, Lightshade Labs has opened 11 dispensaries in the Denver area of Colorado, with 8 being in Denver, 2 in Aurora, and 1 in Federal Heights. The Company also owns several growing facilities, according to press reports. The company markets flower, concentrates, edibles, pre-rolls, tinctures, and vapes among other products.Continuing to Build. The acquisition will bring Schwazze’s total Colorado dispensaries to 25once closed, and will bring the total amount of dispensaries to 35, along with 7 cultivation facilities and 2 manufacturing assets in New Mexico and Colorado. Schwazze is continuing tobuild on the goal on deeper market penetration through the acquisition, and we believe that the Company will continue to expand on the goal with New MexicoMaintaining Outperform. We are maintaining our Outperform rating and $4.00 twelve month price target. At our price target, SHWZ shares would trade at 14x projected 2022 adjusted EBITDA, a premium to the peer group’s 11.5x but warranted given our expectations for fastergrowth at Schwazze.Equity ResearchJoe Gomes, Senior Research Analyst561-999-2262, jgomes@noblecapitalmarkets.comJoshua Zoepfel, Research Associate – jzoepfel@noblecapitalmarkets.comNoble Capital Markets, Inc.Trading: (561) 998-5489 Sales: (561) 998-5491www.noblecapitalmarkets.com
@aconceptsketchgmail-com I went to University of Denver. Let me tell you… a different kind of student there than, say, UNM. DU students are a bit higher caliber. DU is considered the Harvard of the Midwest. But, the entire neighborhood will be able to support these stores. Wash Park is a bustling neighborhood with a up-and-coming community. Lots of cross traffic in the neighborhoods. Should do fine over the years.
Shwz Going Deep is no BS , the newly renovated Starbuds Glendale is 1.9 miles to the north and another Starbuds 1640 E Evans Ave, Denver is 1.8 miles to the southA quick goggle search on the Light Shade Location at 2215 e mississippi ave denver co , and it pulls up a very sellable asset location wise and quality of the dispensaries interior is very high end. Interesting to note that it is above a beautifully decked out Garden Restauraunt . It’s surrounded by a super posh Retail/Restaurant/Spa District.
@aconceptsketchgmail-com
That strip mall is where the students hang out as there is a coffee shop just three doors down with Starbucks across the street… Evans bisects the University and is a fairly major street in Denver. But, I really do not see DU students lining up there. They are a completely different type of crew. Nonetheless, there is a Safeway grocery store just three more blocks away and many other major retail destinations along that area that service the neighborhood. That neighborhood absolutely has the clientele that would be regularly looking for quality product. This is a pretty good location.
Buying any cannabis stock right now means you buying at or near 52 week lows or ATL’s.From a real estate perspective SHWZ is like buying the worst house in a great neighborhood . The Colorado Cannabis trade gets knocked because all most people do is parrot the industry mouth pieces . Most people overlook the good stuff , they just glance at the exterior and drive on . It takes a skilled buyer to see what potential SHWZ has in CO . At some point these type of buyers end up with the most equity over time as it doesnt take much before the entire neighborhood is awesome . and SHWZ owns 20% to 25% of it 25 dispensaries , approx 75 more to go, 100 dispensaries coming up
Building a defensible market by” Going Deep”
The following is part of the transcript from SHWZ ceo Justin Dye recent interview ;
(In regards to the top 5 MSO’s) There seems to be a lot of support for other companies and what they’re doing and the space more broadly so we’ll see where that goes , and it feels like a massive inflection point is coming ( Big MSO’s to spread out ). If it does happen, it’s just a waiting period. In the meantime we continue to look after the real estate that we’ve got and expand the footprint that we’ve got and make sure that it’s that it’s profitable it’s it’s all about getting to 100 Stores
Let’s just take Colorado Colorado’s roughly a 2.2 billion dollar uh addressable market for cannabis you know we are we’re 120 million dollars in that state roughly yeah and so that’s six percent I think we can certainly build a four to five hundred million dollar business with wholesale and with retail and branded products and services I think that’s very achievable for us over time and continue to do what we’re doing doing being really disciplined around Capital allocation how we invest our capex making sure we’re getting good returns making sure we’re doing the right acquisition deals continuing to broaden our product capabilities for wholesale and being able to offer that to the 630 stores that we don’t own.
That’s a huge opportunity because we can really make life easier for them if they want to stay independent and do their own thing that’s great we can we can help them create value lower their costs make life easier for them to take care of those customers in towns where we’re not in
I think in New Mexico we can build a couple hundred million dollar business down there it’s a 400 million dollar total addressable market today it’s going to a billion so I think we can easily build a market like that there with retail and wholesale and uh and then you you know then you’ve got other states out there as well
My goal my goal is build a great company that’s different that has real energy behind it that is innovative that does the right thing and we’re sticky with communities we’re doing the right things what we’re doing better to help our customers
At the end of the day when I go to sleep at night I feel good about that can it be a 1 billion dollar Revenue company could it be a 2 billion dollar Revenue company , We could buy somebody merge with someone and have it be much bigger than that down the road .
@aconceptsketchgmail-com These kinds of remarks echo a lot of my thinking. Stocks are down now. The economy is going to get flattened. But, look way, way down the road. You can see that these companies are building something for the future. The patient investor is going to really do well over many years.
Justin Dye CEO of SHWZ said ” its a once in a lifetime oppotunity to create generational wealth ” 36 minutes into town hall meeting
Notes from Townhall with Schwazze (10/11/22)Financial:Schwazze still expects to be operating cash flow positive for the 2nd half of 2022 (excluding acquisition costs)Each and all of Schwazze’s dispensaries are profitableEBITDA margins are in the mid-30%The company has a new Distribution Center opening in Colorado which will cut costs substantiallySchwazze is always looking at cost efficiencies and layoffs/closures are not off the tableThere are 137MM shares on a fully diluted a basis and ~190MM shares in total if you convert all debt and derivatives (this implies a market cap of around $228MM at $1.2 per share.The company remains severely undervalued relative to its peers.Operational:Schwazze will have 3 to 4 more stores opened by year-end (which implies 40 or 41 dispensaries in total by year-end across both Colorado and New Mexico).Two of them which are pending in New Mexico based on the corporated website for R. Greenleaf and the other one or two dispensariesare likely in Colorado.Schwazze is beating the market by ~15% in the state of ColoradoThe reason Schwazze is unable to brand the same name across all stores is due to a limited license agreement with Starbuds for the state of TexasNew Mexico is growing as planned or betterThe home delivery program in Aurora is doing okay but not expanding much and there are no real plans for New Mexico at this time.Legislation:Justin Dye, the CEO of SHWZ, for the first time believes that the various efforts in Cannabis legislation (e.g., SAFE, More, Descheduling, Decriminalization) are more likely to happen in the near term than not. If it did, it could 3x the value of integrated players such as Schwazze.Strategically:
The next aquisition for SHWZ will be big not a 1 or 2 store deal
SHWZ is not interested in Oklahoma as its next state due to the market competitionTexas was a market Justin Dye seemed keen on as a possibility (and unlikely his commentary on Oklahoma, he seemed excited about Texas)The company has no plans for repurchasing shares as it views there are better opportunities for growth (both organic and inorganic)
@aconceptsketchgmail-com These are solid numbers with a strong foundation. Every single dispensary is profitable! Huge. This is one of those sleeper stocks that no one is paying attention to. But, once Biden reschedules cannabis, people will be scouring the world to see which stock will do the best. Schwazze is definitely one of them.
Passed the dispensary outside of UNM. Still not open. No signage as to when.
Fluff but worthy of a 1 min read , mentions SHWZ
https://www.twst.com/news/marijuana-stocks-the-new-frontier-in-growth-investing/
@aconceptsketchgmail-com
Nice read. I’d love to see Vext & Schwazze team up. That would be huge. And, no overlap. Vext is profitable. And, they are in Arizona (Plus, Ohio, but it is just getting started there and they focus on medical).
Store overlap is intentional because its very defensible Justin Dye and lots of his team at SHWZ all came from Albertsons
https://www.wsj.com/articles/kroger-albertsons-antitrust-review-likely-to-focus-on-local-store-overlap-11666344601
You are going to have competition. Why not be the competition?
@dhtaylor Truth!
The estimate for New Mexico was way off , NM sales is hitting a range of 39 to 40 mil pr month , Chart on the left side of attached graphic shows an estimate of $400MM in 2026. The run rate from Q3 in 2022 we are already there .Shwz gonna Suprise big
https://twitter.com/shompzilla/status/1585061289164177410
@aconceptsketchgmail-com i think my current run rate for 2023 is $225M. I also have CapEx at about $12.5M TTM. That may likely increase, though.
Intersting graphic of potential bull run for samller stock like SHWZ LOWLF or TLLTF
https://twitter.com/LogicPrevails_/status/1585249377970704385
@aconceptsketchgmail-com
Jeff Spahn October 28, 2022 10:06 am
@dhtaylor 280E Work around ? Seems everyday the Cannabis business is getting a little more creative.’New Jersey Lawmakers Approve Bill To Let Marijuana Businesses Claim State Tax Deductions As Partial 280e Workaround’ – Marijuana MomentBY Benzinga— 11:51 AM ET 10/28/2022New Jersey Lawmakers Approve Bill To Let Marijuana Businesses Claim State Tax Deductions As Partial 280E Workaround – Marijuana Moment
The New Jersey Assembly has approved a bill that would allow licensed marijuana businesses to deduct certain expenses on their state tax returns, a partial remedy as the industry continues to be blocked from making federal deductions under Internal Revenue Service (IRS) code known as 280E.
The legislation from Assemblymember Annette Quijano (D) cleared the chamber in a 60-6 vote on Thursday, about a month after it advanced through committee with amendments.
While many state tax policies simply mirror federal law, the new bill says that, for the purposes of the New Jersey’s tax code, a licensed cannabis business’s gross income “shall be determined without regard to section 280E of the [federal] Internal Revenue Code.”
When it comes to federal tax policy, those businesses would still be subject to the IRS 280E code, which precludes entities that illegally sell Schedule I or II drugs from making key tax deductions in their federal filings. But if the New Jersey bill is enacted, the licensed cannabis industry could at least see some state-level relief.
The legislation “shall apply to taxable years beginning on or after January 1 following enactment,” it says.
A fiscal analysis released earlier this month found that the bill would likely have mixed economic impacts.
On the one side, the decoupling from federal 280E policy is expected to “result in an indeterminate annual loss of revenue” for the state because marijuana businesses would be eligible for relief from taxes that they currently pay.
On the other side, the Office of Legislative Services (OLS) said that “providing access to these deductions and credits may also help generate more economic activity by cannabis businesses,” and so “the State and local governments that tax cannabis businesses might indirectly realize an indeterminate amount of additional annual revenue.”
“OLS notes that the legal adult-use cannabis industry in New Jersey is immature at the time of this writing, having only begun sales at limited locations in April of this year,” the analysis says. “The industry may significantly grow or change in unpredictable ways over the coming years, casting uncertainty over any fiscal estimate.”
The bill was amended in the Assembly Oversight, Reform and Federal Relations Committee last month, which members agreeing to remove an earlier provision that would’ve made it so only cannabis licensees with gross receipts less than $15 million would be eligible for state tax deductions.
Now the measure heads to the Senate for consideration.
New Jersey isn’t the only state that’s working to address the unique financial challenges that the cannabis industry faces under federal prohibition.
Earlier this year, a Pennsylvania House committee advanced legislation to similarly make it so medical marijuana businesses could receive state tax deductions for expenses they’re currently prohibited from claiming under federal tax law.
New York’s governor signed a budget proposal in April that similarly includes provisions to let marijuana businesses take state tax deductions.
Last year, congressional researchers examined tax policies and restrictions for the marijuana industry–and how those could change if any number of federal reform bills are enacted.
A number of standalone bills to remove the 280E penalty’s application on marijuana businesses have been filed over the years in Congress, but none has ever been given a hearing or a vote.
But for the time being, the marijuana industry continues to face tax policy challenges under the umbrella of prohibition. And the Congressional Research Service (CRS) noted that IRS “has offered little tax guidance about the application of Section 280E.”
IRS did provide some guidance in an update in 2020, explaining that while cannabis businesses can’t take standard deductions, 280E does not “prohibit a participant in the marijuana industry from reducing its gross receipts by its properly calculated cost of goods sold to determine its gross income.”
The IRS update seemed to be responsive to a Treasury Department internal watchdog report that was released in 2020. The department’s inspector general for tax administration had criticized IRS for failing to adequately advise taxpayers in the marijuana industry about compliance with federal tax laws. And it directed the agency to “develop and publicize guidance specific to the marijuana industry.”
https://twitter.com/Cannalorian/status/1590015189356711937
https://twitter.com/shompzilla/status/1590031985199943681
https://www.reddit.com/r/SHWZ/comments/yodjhj/schwazze_q322_revenue_ebitda_forecast_estimate/
https://www.prnewswire.com/news-releases/schwazze-announces-third-quarter-results-301673612.html
Reading through all of this, there are so many reasons to be building up a massive position in Schwazze. They are completely underestimated. Plus, with the potential of a shift in legalization, this only has the potential to propel profits even further. With Texans not having access to cannabis such as what is available to New Mexicans, that 40% is huge. But, it could be a liability in the future if Texas legalizes. However, that is something that I believe will take a long time to occur. Texas is a bit backward.
I’m really anxious to see what is about to occur with the Biden re-schedule that could happen any day. These stocks would light up the board. Schwazze is one of my top picks for a reason. I think they will be a key player for years to come. But, I also believe they merge with another key player that has no presence in Colorado or New Mexico… which is a lot of players. This will only serve to drive the potential even further over many years.
Love this stock.
https://www.cantechletter.com/2022/11/schwazze-is-overlooked-in-us-cannabis-stocks-says-beacon/#
Medicine Man Technologies, Inc. (OTCQX:SHWZ) Q3 2022 Earnings Conference Call November 9, 2022 5:00 PM ET
Company Participants
Joanne Jobin – Investor Relations
Justin Dye – Executive Chairman & Chief Executive Officer
Nirup Krishnamurthy – President
Nancy Huber – Chief Financial Officer
Conference Call Participants
Operator
Good afternoon, ladies and gentlemen. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Schwazze Third Quarter conference Call. Please note all lines have been placed on mute to prevent any background noise.
I would now like to turn the call over to Ms. Joanne Jobin. Please go ahead.
Joanne Jobin
Greetings, and welcome to the 2022 Third Quarter Conference Call and Webcast for Schwazze. We are being hosted by Justin Dye, Chairman and Chief Executive Officer; Nirup Krishnamurthy, President and Nancy Huber, Chief Financial Officer. Following their presentation, management will take questions submitted via the web link found on Schwazze’s Investor Relations website and in the earnings press release.
I would also like to remind you that Management’s prepared remarks and answers to your submitted questions may contain forward-looking statements, which are subject to risks and uncertainties. Examples of forward-looking statements include, among others, statements regarding federal and state legislation and regulation and Schwazze’s future results of operations and financial position, business strategy and plans and objectives for future operations.
Such forward-looking statements may be preceded by the words plan, will, may, continue, anticipate, become, build, develop, expect, believe, poised, project, approximate, could potential or similar expressions as they relate to Schwazze’s. Investors are cautioned that all forward-looking statements involve risks and uncertainties that may cause actual events, results, performance or achievements to differ from those anticipated by Schwazze at this time.
Additional information concerning factors that could cause events, results, performance or achievements to differ materially is available in Schwazze’s earnings release made available before this call and available on Schwazze’s Investor Relations website and in Schwazze’s Form 10-K for the year ended December 31, 2021.
In addition, other information is more fully described in Schwazze’s public filings with the US Securities and Exchange Commission, which can be viewed at http://www.sec.gov on http://www.sedar.com or on the company’s Investor Relations website. Also, Schwazze’s may discuss non-GAAP financial measures during today’s call. A reconciliation of the differences between the non-GAAP financial measure discussed during the call with the most directly comparable GAAP measure can be found in Schwazze’s earnings press release made available before this call and available on Schwazze’s Investor Relations website.
I would now like to turn the call over to CEO and Chairman, Justin Dye.
Justin Dye
Hello, and thank you for joining us this afternoon. I will provide a brief overall business review and our newly appointed President, Nirup Krishnamurthy, will provide operational details before our CFO, Nancy Huber, reviews our quarterly financial results in detail. I will then conclude our presentation with some final thoughts. And afterwards, we would then be happy to take your questions.
For the third quarter of 2022, Schwazze continued to outperform the Colorado market. Despite a continuing challenging environment, I’m extremely proud of the Schwazze team for their commitment and dedication over the past year.
Despite a challenging economic backdrop, we outperformed our markets in Colorado by 12%. We’ve worked hard to continue to grow our market share, increase our profitability rate and generate free cash flow from operations, and that’s after paying taxes and CapEx, placing us in an exclusive club within the cannabis sector.
Our team continues on our vision and journey to become 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 and leveraging data analytics and technology to drive decisions.
And now, I would like to officially welcome newly-appointed President, Nirup Krishnamurthy to take us through some of our accomplishments this quarter and since the beginning of the year.
Before we continue, I would like to say that a President, Nirup is assumed oversight and responsibility for strategic planning, growth initiatives in our core markets and operational execution.
He works directly with the executive leadership team to accelerate innovation, growth and our performance. Nirup joined Schwazze in 2020, bringing more than 25 years of experience in innovation, technology, retail operations with M&A at Fortune 500 companies.
Nirup has played an integral role in building the Company and growing revenue from $9 million to a run rate of $176 million in run rate EBITDA of $60 million. Under his leadership, Schwazze has grown from less than 20 employees to over 725 today.
Prior to joining the Company, he held C-level roles with United Airlines, Northern Trust Bank and former national grocery retailer A&P. He earned a bachelor’s in Mechanical Engineering and a doctorate in Industrial Engineering from State University of New York, Buffalo.
Nirup Krishnamurthy
Thank you, Justin. As you mentioned, I have been with the company almost since inception, and I’m very proud of the team we have assembled and what the team has accomplished to-date. There is still much more to do as we navigate and continue with our unique skill set and strategy to be a leader in the markets that we enter.
And now let’s look at the past quarter and discuss our challenges and successes, of which there have been quite a few. We, like the rest of our industry partners, are continuing to navigate the ongoing effects of the pandemic, as well as the broader economic conditions in our country in both our markets in Colorado and New Mexico.
Despite these challenges, our team delivered another record quarter in terms of revenue and adjusted EBITDA growth. I would like to thank all our team members for their commitment to our customers, hard work, enthusiasm and operational excellence.
Since December 2021, Schwazze has added 15 cannabis dispensaries, 10 in New Mexico and five in Colorado; five cultivation facilities, four in New Mexico and one in Colorado and one manufacturing asset in New Mexico. This year, we also opened two new dispensaries in New Mexico. This brings our total dispensary count to 35 across our two markets.
I would like to highlight a few of our key accomplishments this quarter. On September 8, we announced the grand opening of our adult-use dispensary Starbuds located in Glendale, Colorado at 492 South Colorado Boulevard at the corner of Virginia Avenue and Colorado Boulevard.
On September 14, we announced that we signed definite documents to acquire certain assets of Lightshade Labs LLC. This included the adult-use Lightshade dispensaries located at 503 Havana Street in Aurora and that 2215 East Mississippi Avenue in Denver’s vibrant Washington Park neighborhood.
On September 28, we announced the opening of R. Greenleaf adult-use dispensary located in the heart of Ruidoso, New Mexico at 360 Sudderth Drive. And on October 4, we announced the opening of our Green Leaf adult dispensary located in Clovis, New Mexico, at 2009 Ross Street in Clovis.
Most importantly, and I cannot stress this enough, our success is built on this cornerstone of our strategy, wherein we continue to develop a decentralized operating system that fosters local management oversight, agility, efficiency and responsiveness to our customers and local communities.
We continue to build our house of retail brands, adding R. Greenleaf dispensaries, expanding the Starbuds and Emerald Fields banners. We expanded our Purplebee’s vape portfolio by introducing our Autograph brand, a premium cannabis terpene-infused vape in Colorado and expect to roll it out in New Mexico early next year.
We also announced a licensing agreement with Lowell Farms to manufacture and distribute Lowell Farms Smokes, a premier line of pre-rolled joints to dispensaries statewide both in Colorado and New Mexico. We expect to begin sales in Colorado in Q4 2022.
We are in our final stretch in the construction of our Colorado internal distribution center, which has been delayed due to city approvals. We expect to begin distribution in Q4, and the distribution center will pay a key role in driving waste out of our supply chain which will benefit our customers, our suppliers and the company as a whole.
We continue to implement lean manufacturing techniques throughout our manufacturing and cultivation areas steadily driving down our internal cost of goods. The margin benefits of this initiative will be fully realized in 2023.
On April 1, 2022, Schwazze commenced selling both recreational and medical cannabis in New Mexico. We can report that New Mexico sales have increased 48.4% over prior year’s Q3 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 four additional stores throughout the state this year, following with more openings in 2023, where we will focus on adding coverage to areas where we currently do not serve customers. Our revenue for Q3 totaled $43.2 million compared to $31.8 million in the same quarter 2021, representing a 36% increase.
Colorado two-year stacked same-store sales identicals for Q3 2022 compared to Q3 2021 and Q3 2020 were negative 9.7% and one-year identicals were negative 10.6% compared to Q3 2022 and Q3 2021. Average basket size for Q3 2022 was $60.96, up slightly by 0.1% compared to Q3 2021.
Recorded customer visits for Q3 2022 totaled $452,220, down by 10.7% compared to Q3 2021. Despite lower customer visits, we are pleased to report that we once again outpaced the state of Colorado by 12% in the third quarter, a remarkable achievement when you consider the challenges faced by the industry at this time.
New Mexico, two years stacked identicals for Q3 2022 and compared to Q3 2021 and Q3 2020 for same-store sales were up 52.9% and one year identicals were 48.4% comparing Q3 2022 to Q3 2021. Average basket size for Q3 2022 was $52.67, down by 12.2% compared to Q3 2021, primarily due to lower recreational use baskets.
Recorded customer visits for Q3 2022 totaled $231,137, up by 69% compared to Q3 2021. As stated in our report last quarter, we anticipate growth in the Colorado market to continue to be challenging this year due to increased cultivation capacity in the state, resulting in an oversupply of wholesale cannabis products.
New Mexico, however, continues to grow as we add new markets in the state, especially along the southern and eastern borders. This quarter, we generated approximately 92% 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 the growth and efficiencies at our retail and production locations.
At retail, we continue to review our product categories, aligning product assortment across our dispensaries, partner with our vendors to promote products and optimize the supply chain as we move to a central distribution model. We have rebannered our Colorado acquisitions to either Star Buds or Emerald Fields based on location and demographics.
Of the two drift dispensaries, one is now Star Buds and other Emerald Fields. The smoking gun store on Colorado Boulevard has been completely remodeled into a flagship Star Buds dispensary. All three dispensaries are experiencing increased revenue and traffic that we attribute to these activities. We’re actively working on remodeling our Emerald Fields Highlands location, which we purchased in the second quarter.
We introduced universal gift cards that can be used in all our retail banners in time for the holiday season. And have launched a customized Star Buds e-commerce site at starbudscolorado.com. The launch was very well received by our customers as evidenced by surveys.
We will continue to evaluate additional opportunities across the cannabis industry with a primary focus on retail expansion with adequate cultivation and manufacturing assets supporting the expansion. Our criteria for potential acquisitions, includes dispensaries that complement our footprint and have a loyal customer base, accretive to bottom line with material synergy opportunities, well-branded products that complement ours. Any announcements regarding expansion intentions will be made once we have reached definitive agreements with prospective partners.
And now, I’d like to turn the discussion over to Nancy to continue our financial review.
Nancy Huber
Thank you, Nirup. I would now like to review our financial results for the third quarter of 2022. As Nirup mentioned earlier, Schwazze reported a record revenue of $43.2 million, an increase of 36% compared to $31.8 million in third quarter ended September 30, 2021.
I am also very pleased to report that we reported a nine-month revenue increase of 46% and to $119.2 million, compared to $81.9 million. Total revenue for the quarter included retail sales of $39.8 million, wholesale sales of $3.3 million and other operating revenues of $96,000.
When comparing year-over-year revenue, remember, we added Emerald Fields, Drift, Brow 2 and New Mexico in late January to mid-February of this year as well as urban wellness assets in Q2. In addition, New Mexico added recreational sales in Q2 of 2022. Much of our revenue growth this quarter over the prior year is due to these acquisitions and change in regulation. Wholesale revenues once again decreased due to an oversupply of wholesale cannabis driving down pricing and an overall decrease in the Colorado market.
Total cost of goods and services for the quarter totaled $17.2 million compared to cost of services of $16.8 million for the same quarter in 2021, representing an increase of $0.4 million or 3%. 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 margin increased as a percentage of revenue from 47.3% to 60.1%. This positive result reflects a higher percentage of retail sales, our consolidated purchasing approach, the implementation of our retail playbook, and vertical product sales in New Mexico.
Operating expenses for the quarter totaled $14.8 million compared to operating expenses of $11.2 million during the same quarter in 2021, representing an increase of $3.6 million or 32%. This increase is due to increased selling, general and administrative expenses, professional service fees, salaries, benefits and related employment costs, driven by growth from acquisitions, offset by stock-based compensation.
Operating expenses decreased as a percentage of revenue from 35.2% to 34.4% as we continue to focus on expense rationalization. Other expense for the quarter totaled $3.7 million compared to $1.6 million for the same quarter last year, representing an increase in other expenses of $2.2 million or 139%.
The increase in other expenses is due to higher interest payments on the company’s debt obligations due to higher debt balances, which was partially offset this quarter by the revaluation of the derivative liability related to the investor notes issued in December of 2021 that was recognized as an unrealized gain in the three months ended September 30, 2022.
As a result of these factors, Schwazze generated net income for the quarter of $1.8 million compared to net income of $1 million for the same quarter in 2021. After accumulated preferred stock dividends for the period basic and diluted earnings per share was $0.00 for Q3 2022 versus $0.02 for the prior year.
Adjusted EBITDA for the quarter was $15.9 million, representing 36.7% of revenue compared to $8.8 million and 27.6% 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, non-cash related compensation costs and depreciation and amortization. See the financial table of adjusted EBITDA for the details.
For the three months ending September 30, 2022, we generated $4 million in positive cash from operations and we expect to generate positive cash flow before acquisition costs for the year. We feel this focus puts us in a select class as one of the very few cannabis companies expecting to generate positive cash flow before acquisitions.
For the nine months, the company has used cash for operations of $4 million compared to generating cash of $4.8 million for the same period in 2021. The Schwazze currently has cash and cash equivalents of $38.7 million at the end of the third quarter.
Turning now to the outlook for 2022. Projected revenue and adjusted EBITDA guidance was revised to reflect the current industry challenges. Guidance for revenue for the entire fiscal year 2022 is projected to be $155 million to $165 million and the projected fiscal year 2022 adjusted EBITDA is projected to be from $51 million to $56 million.
We are on target to deliver the lower end of the range for adjusted EBITDA and which was a fourth quarter annualized run rate of $60 million to $72 million. We expect to be slightly below the projected fourth quarter annualized run rate of $175 million to $200 million for revenue. This lower-than-expected revenue in the fourth quarter is due to lower-than-expected wholesale sales and construction delays in the new store openings in New Mexico.
Despite industry pressures, we remain optimistic that 2022 will continue to be another pivotal year as we integrate and synergize our acquisitions and continue our expansion and M&A plans.
Thank you for your time today, and I’d now like to turn back to Justin, who will open the call to questions-and-answers.
Justin Dye
Thank you, Nancy, and Nirup.
Before we open the call to Q&A, once again, I would like to thank you all for your continued support, encouragement and interest in Schwazze. We would now be happy to take your questions. To ask a question, please click on the link on the Investor Relations portion of our website and submit. Thank you.
Question-and-Answer Session
A – Joanne Jobin
Thank you, Justin, Nirup and Nancy, and thank you, everyone, for participating in Schwazze’s third quarter webcast this afternoon. My name is Joanne Jobin. I am the IRO for Schwazze and I will be moderating the Q&A on behalf of the team today.
So the first question submitted as everyone can probably guess has to do with cash position. Nancy, it’s a big topic. Do you have enough cash? And are we generating cash?
Nancy Huber
Thanks, Joanne. That’s a great question. Yeah, the company generated $4 million in cash from operations in the third quarter. And for the year, we expect to generate positive cash flow before acquisitions for the year. As I said in the call, this is exceptional for most cannabis companies. We are one of very few that are generating positive cash flow. And we’re doing that through maintaining our efforts in controlling costs.
So you’ll hear us talk a lot about things like implementing an internal DC to improve margins and making sure we’re using our SG&A as cost effectively as we can. We have a playbook that helps our stores understand how they should be putting labor in their stores, et cetera.
So we’re continuing to focus on those operating expenses and SG&A expenses, every single day.
The other thing you’ll hear from some of the cannabis companies more recently is they’re starting to use green in their operations, et cetera. We’ve been using that technique since we started doing plant-touching activities.
And so, although you’re not going to see a huge improvement, because we’ve been implementing that all along, you will see continued improvement every quarter as a percent of revenue. We’re very targeted on that. So for example, this quarter, our gross margins and our SG&A are a lower percent of revenue than they were the quarter before.
We will continue to look at delivering positive cash flow every year. That is one of our major focuses. And we’re using that cash to drive organic growth as well as make smart acquisitions.
I saw one of the other questions that was asked, was about looking for financing. We’ll do that as the opportunity presents itself with an M&A activity. But today, our debt is probably priced as good as we can do in the market today given inflation.
Joanne Jobin
Thank you, Nancy. Next question up for Nirup. Maybe we can talk a little bit about the new products, the launch of Autograph that you mentioned in the call? And can you tell us about that, and any other brand activity that’s been going on in the past quarter?
Nirup Krishnamurthy
Thanks, Joanne. Autograph is a brand extension of our Purplebees brand, which is a well-recognized value-priced, botanically derived the big brand. We introduced Autograph this quarter. This is our new Signature Series premium Wakelin, made from cannabis-derived tokens versus the botanical one we had before. Product is now available in a 0.5 gram and 1 gram across all our stores in Colorado.
We are very proud of the fact that we introduced conscious sustainable packaging for this product. This includes the child-resistant 100% recyclable tubes that hold the products and they’re sourced from ocean-bound plastic, which is utilized in a manner that makes it biodegradable over five years.
The second, repackaging, the outer marketing layer is also fully recyclable. So, we launched new brand in Q3, and then we would continue to expand it to the wholesale market in 2023.
We also have an agreement with Lowe Farms. So, Schwazze is the exclusive licensing, manufacturing and distribution partner in Colorado and New Mexico for Lowe Farms. Lowe Farms is a premium California-based artisan craft cannabis brand that offers an extensive portfolio of award-winning original and licensed brand for licensed retailers statewide.
Products are now available in all our dispensaries. And we also — I’m happy to note that we have made our first wholesale sales this quarter as of this week. So we are very happy to partner with Lowe Farms, and I think there is a lot of legs to that product. And we’ll be taking it to New Mexico the fourth quarter of 2023.
Joanne Jobin
Thank you, Nirup. Next question. Nirup, you’re still on. Can you discuss the Colorado market and what the state of the market is at this point? And how Schwazze fits into that market?
Nirup Krishnamurthy
The Colorado market in terms of retail as the most of us know, is having a tough year. So, Colorado market as a whole was down 20% to 25% year-to-date. And it invested in cycling COVID and also in a tough economic environment. So, having said that, I’m very happy to note that we — as in Schwazze outpacing the state by 12% once again this quarter.
We have had seven quarters in which we outpaced the state and we continue to do that. We apply our retail playbook, to run our retail operation. So, we have three main focus areas, one, we have the best assortment in our stores. to we are the highest quality products, and we want to be the best service possible to our customers.
So — and I’ll tell you this year, our suppliers and the supplier community have been very, very collaborative and have worked very closely with us to provide customers a great products at a good price, which has driven good volume, and our customers have remained loyal through this period. So Colorado is still a large market nearly $2 billion, and we will continue to cultivate that market, and we expect to continue to grow in this market to be the most admired cannabis company in Colorado.
Joanne Jobin
Thank you, Nirup. And while we’re at it, we’re going to ask you another question here. Regarding wholesale, — there’s a lot of people asking about wholesale numbers that are down dramatically, particularly in Colorado. And some companies have even announced that they’re exiting the wholesale market. So what is Schwazze strategy?
Nirup Krishnamurthy
The wholesale market in Colorado was driven down primarily due to overproduction of flower in 2021. We are a glute in the marketplace. Again, cycling COVID. There’s a lot of alteration that happened last year, which resulted in number; one, excess slow, but we wholesale lower down. Number two, it affected the excess distillate in the market that is essentially used across a lot of CPG directs, like rates, et cetera, gaming.
And so we saw significant pressure on distillate pricing this year versus last year. Distillate pricing in Colorado was almost down 60% over last year. But in spite of that, we have maintained our volumes, we have maintained our tonnage in terms of number of kilograms sold per month of distillate in the marketplace.
So, we don’t believe the market is going anywhere. I think it’s going to come back over a period of time. And we value our relationships, we provide distillate to adopt manufacturers across all categories. and we have healthy relationships that will continue in the years to come.
And we also expanded our CPG portfolio — we are not in too many dollars with our great brands last year. But this year, our goal is to expand across over $100, and we continue to expand that portfolio on the low farms and coming online, and we have other plans to develop new brands, be it on the CPG side or on the flower side, we believe that the wholesale market has good potential in the long run — the medium to long run. So we believe this is a temporary kind of depression in the wholesale market. But we are happy with where we are at this point
Joanne Jobin
Thank you, Nirup. Justin, here’s a question for you. Can you speak to inflation and how that is impacting sales or expected to continue to impact sales for the next quarter?
Justin Dye
We obviously are concerned about it. When you look at what’s going on with the consumer, inflation is still running at a healthy clip, roughly around 8%, wages are under pressure. So people are having a tougher time having their dollar go further. So it’s really important for consumer product companies to provide value and provide deals. So we continue to watch that. I think this is an emerging category in terms of cannabis. We’re seeing that we’re perhaps not completely insulated, but we’re certainly resilient as a category. So I think that’s certainly encouraging.
So we’re watching how consumers are behaving, what tree or flower they’re purchasing, certainly looking to seeing, how they’re participating in deals, maybe they’re buying, buy one, get one free deals in our dispensaries. So we’re making those more available. So certainly, it’s a concern. And you’re looking at more debt, particularly mortgage debt is becoming more and more expensive for homeowners.
So we’re in the state where it’s concerning — but yet, we’ve got a low unemployment rate. So we’re going to have to continue to watch and see what’s happening with our customer and keep our finger on the pulse. So interesting times. Obviously, we’ll see what happens with the rest of the vote count. I don’t think we have a decisive really decisive view of what happened with the House and the Senate from last night. So we’ll see what happens there as well. But certainly, we’re watching and we’re concerned about the economy.
Joanne Jobin
Thank you, Justin. Nirup now that we are fully vertical with grow operations in Colorado and New Mexico, can you discuss how you expect this to impact your sales and products going forward?
Nirup Krishnamurthy
We have this year, acquired two bills in Colorado. So with that, we are now rolling out new products, and we are selling flower now on the wholesale side. We are also developing new products like we said, autographs and we’re also launching a new product in the fourth quarter that I can’t quite talk about yet.
And as you know, we have launched Lowell Farms. So I think what happens is Schwazze was essentially — Schwazze in Colorado was essentially a third-party supplier based retail chain last year, and almost 100% of our products was third-party products. And you’re going to see a shift from that down a little to our own internally manufactured products over the next year or two.
In New Mexico, we bought a vertically integrated operation, which was essentially 100% products sold was vertically produced. Now as New Mexico market expands, we expect a lot of suppliers to show up in the market, for example, The Clear [ph] has launched in New Mexico, and we are now starting to carry their products. So you’re going to see more third-party products come into our stores in New Mexico over time as suppliers enter the market. So at the end of the day, our focus is to give the best set of products available both ours and our suppliers’ product to the customers to make sure it’s the best shopping experience they have in our stores. So that’s going to be a month going forward.
Joanne Jobin
Thank you, Nirup. Can you tell us how many acquisitions since the New Year has been undertaken by Schwazze both in New Mexico and Colorado?
Nirup Krishnamurthy
Sorry, Joanne, could you just repeat that question again?
Joanne Jobin
Can you talk about how many acquisitions have been made since the New Year in Colorado and in New Mexico?
Nirup Krishnamurthy
Since December of 2021, we have added 15 cannabis dispensaries, 10 in New Mexico and five in Colorado. We also added five cultivation facilities, four in New Mexico and one in Colorado; and we added one manufacturing asset in New Mexico. We also opened two organic stores in New Mexico, we had also in Clovis, and we expect to open four more stores in New Mexico by the end of the year.
So we also have — obviously, we also have a good pipeline of future targets, whoever, as you can see by the past year, reviewing, announcing and closing acquisitions takes time. In our case, this year, they all closed literally within the same quarter. So this thing comes in waves, and we expect that to continue.
Joanne Jobin
Okay. Thank you, Nirup. I’m going to move over to Nancy. Nancy, the improvements that you’ve seen in product margins and revenues continues to be impressive, do you think that we can continue this trend?
Nancy Huber
Yes. Thanks, Joanne. That’s a good question. And when you look at our adjusted EBITDA as a percent of revenue this quarter, it was the highest number it had been. Our target is kind of mid to high 30s for adjusted EBITDA. So that’s kind of between the gross margin and SG&A. Our gross margin as we move into 2023 will be positively impacted by adding the internal distribution center. We think that will have kind of low single-digit effect. And then this could be offset as Nirup said, as we add third-party products in New Mexico. So they kind of potentially offset each other.
The other thing to understand is as we grow stores organically, they obviously don’t start out at the revenues we expect them to be. It usually takes us somewhere between eight to 12 months to get to our full run rate. So things like rent and some of the store costs are being amortized over that revenue will be at a higher percentage. And so that will impact the percent of SG&A as we look at it, as we continue to add those stores in New Mexico.
Many of our — much of our growth in New Mexico will be through that organic growth. In Colorado, it’s a little harder to add organically, although we do have a couple of things in the pipeline for that. But more of Colorado ends up being M&A, which – and which positively hits the P&L because it has full rate run rate for revenue as well as SG&A costs, but obviously, you pay a little bit more for that.
So I think what our expectation is, is that we’ll continue to see the EBITDA in that mid- to high 30% range. And we’ll continue to work on operations and SG&A to take out as much cost as possible to return that cash to the shareholders.
Joanne Jobin
Okay. Thank you, Nancy. And can you comment on the guidance, which was revised downwards this year? Do you have any additional color on that?
Nancy Huber
Yes. So the guidance on the adjusted EBITDA side was not adjusted significantly. We do expect to hit that low end of that guidance range that we have for Q4 run rate. The year – we gave full fiscal year guidance, which was $51 million to $56 million in adjusted EBITDA. And if you take out the first three quarters, you’ll see that the run rate for Q4 would be a target on that low end.
Revenue guidance is a little bit lower hopefully, we’re not going to be at the low end of that guidance. We’d like to think we could hit the midpoint or better, but we are seeing wholesale continues to be under significant pressure. And as you know, in October, there’s harvest, and so we anticipate wholesale numbers could still go down a little bit as we see product hit the market from that.
And then we anticipated, as Nirup talked about, we think we’ll have four more stores open in New Mexico, but we were hoping we would have those stores open slightly earlier than it looks like we are. We are experiencing construction delays, mostly because of approvals from municipalities in terms of inspections and stuff. So I think we have a better handle on exactly what that time line looks like. And as I said, we expect four stores to be opened before the end of the year, but we had hoped they’d be open closer to the beginning of Q4 rather than mid to end of Q4.
Joanne Jobin
Thank you, Nancy. One of our listeners is asking us to provide an update on our M&A pipeline. And what does that execution look like? Perhaps Justin can take that.
Justin Dye
Well, without sharing some of our secrets, I think when we set this thing out three years ago, we said we wanted to be number one in Colorado. We wanted to be retail focused, develop good relationships with a broad assortment of suppliers that have the broadest assortment of products, give our customers a lot of choice within those stores, develop brands and products that we create when we listen to the customer and find out what they want. I think autograft and Purple Bs are good examples of that, create work really hard on wing processes, manufacturing, making data-driven decisions, creating really good processes.
So we take cost out of the business, and we can operate at a very efficient level, and that’s what we’re doing. So we’re going to continue to look for organic growth, so stores finding new stores in the state of Colorado. I’ll remind everybody there’s a little over 650 adult-use stores. We have 23 of those today. And we see a lot of growth. We’ve seen there’s going to be — there will continue to be consolidation. We will be a consolidator, and we’re going to continue to work on that. And we’re going to continue to partner with good brands and do that.
And then obviously, in New Mexico, we’re opening we’ve opened two. We’ve got another four coming this year. We’ve got a good slate of stores. Our real estate teamshave done a great job working in the local towns and counties in both Colorado and New Mexico, so you’ll see us adding more stores. And we want every store to be obviously meet the needs of the local to. We’re good stewards. We don’t spend a great deal of money on those stores. they’re clean, they’re nice stores, but we watch our capital closely. — and we expect them to generate cash flow.
And we’re going to continue to do that, and we’re stint find good locations. And then there’s acquisitions that bringing great retail locations, bring capabilities, bring brands, products to us, and we will look to drive synergies, cost synergies, revenue synergies and leverage our fixed operating costs and SG&A. So it really bring our operating playbook, merchandising what good looks like from a product standpoint in the stores or what we’re going to carry, how we’re going to price it, how we’re going to promote it. And then what we’re going to do from a retail and distribution, manufacturing delivery, et cetera, on the supply chain side. So those are — that’s what we’re going to continue to work on. Could there be other states that fit our regional our regional strategy. We’ll continue to evaluate those types of opportunities. But that’s really what we’re going to do. I mean goal number one is continue to work on Colorado and continue to work on New Mexico. And that’s our strategy. We’ve got a good balance sheet. We’ve got cash. We’ve got cash, and we’re in good shape. So that’s really where we’re headed and what we’re up to. Thanks.
Joanne Jobin
Thank you, Justin. We’ve got a question here. We’ve had quite a few of them actually regarding the difference between setting up organically in New Mexico and Colorado and why aren’t we doing the same thing in Colorado. Nirup?
Nirup Krishnamurthy
Yeah. So in Colorado, we have over 650 recreational dispensaries. And on the – adding new dispensaries is constrained by the local counties where they have is a limited license in state. And so really, there are a couple of areas that have opened up jurisdictions that have opened up for new dispensaries. And for those areas, we will apply for new licenses. However, most of the comedies are pretty much restricted at this point in time. And so really, the way we can get in and grow our footprint in those accounts is through acquisitions at this point in time.
New Mexico is a newer environment and it is a little more open in terms of trying to get new licenses. And we have secured some very good real estate locations, as Justin mentioned. And we’re going to launch our Greenleaf stores in those locations. So there’s – and I don’t think that’s going to last forever. And so while the first couple of years of recreational use comes online. We want to make sure we have the best footprint across the state.
Joanne Jobin
Thank you, Nirup. We’ve got a great question here about labor shortages in the marketplace. Do we see any experiences or challenges to fulfill personnel positions such as managers, Budtenders, et cetera? Nirup maybe you could comment on that.
Nirup Krishnamurthy
Yeah. Labor is always — in this environment in the country over the last couple of years, it’s been a challenge to recruit. And so — but having said that, our HR function, Dan Bonach, our head of HR. He’s put a really good program in place where we have a steady pipeline of prospects. In addition, we have implemented some good programs in terms of benefits for our employees. We have introduced a 401(k) program with matching.
Our benefits are — are very good in terms of health, dental. And our customers – our Budtenders, for example, we have a very good training program that we are working on to ensure that they are – become part of the family. And so the way we try to hire employees is they’ve come to us and they want to stay with us for a while. And so creating an environment that allows for that is what we are going after. But yes, hiring is not easy these days.
Joanne Jobin
Thank you, Nirup. And we are reaching the top of the hour. So we’ve got a few more questions here, and then we’re going to wrap it up. Justin – do you have any comments about the election results and what it might mean for the cannabis legislation? I know that’s on everybody’s mind.
Justin Dye
Well, we went into the evening with five stage-up for adult use. You had a blue state in Maryland that voted for cannabis — you also had a red state in Missouri vote for reg cannabis. Arkansas and the 2 Dakota states did not. So it continues to grow although they’re still — states are still making their own decisions. I think that’s positive. I think we’re continuing to see momentum. And I think it’s still too early to call to figure out what’s going to be happening in the Senate and on the congressional side.
So I think it’s going to be mixed. I think we’re going to have good checks and balances in D.C. And hopefully, the President does what he said he was going to do, which is, I think, the expansion at the federal level and encouraging the governors to do the same thing for those that had minor arrest around cannabis possession. I think that’s a good thing for the industry, and it’s the right thing to do. And hopefully, we’ll start seeing some safe banking discuss some real movement there. We’re hopeful.
I think at this point, based on our intelligence, it’s more likely than not that we’re going to get safe, safe plus between now and end of January, which would be terrific for the industry, being able to not have to deal with cash at the stores, that’s a safety issue, being able to have banks being able to lend you money, term loan, bank loans, term loans asset-backed revolvers for your liquidity, being able to actually have custody and hold your money with FDIC insurance.
And just more — just having more competition and more coverage, being able to have insurance and being able to offer cheaper but better health benefits and 401(k) because you’ve got a broader set of vendors that could cover you. So I think all that will be very good for the industry. So we’re optimistic about that.
Joanne Jobin
Thank you, Justin. And one more question before we end the session. What is the plan for the company? And do you expect any liquidity events as well. We’ve been getting a lot of questions on that.
Justin Dye
Great. Great question. We’ve got a very, very countless Board of Directors. We have great investors in the company and all of them signed up to build a great company that is leading towards taking care of customers, being innovative there, giving them what they want, building a really great company that takes care of, not only customers, but our employees and creating great careers for them. And building a business that we’re really proud of that create on a relative basis, create more value than competitors in this market and then operation is better. So that’s what we’re building.
And hopefully, one of these days, we’re going to get credit for that from a stock perspective. So we want to build a great company. It’s really that simple. And we will get rewarded. There’s a great quote that I like a lot from a Greek philosopher nothing great has ever been created suddenly, and it takes time, takes vision, takes a plan, takes hard work, takes execution and you got to stay with it. And you got to do it every day. You got to have good team work, and know where you’re going, and we do.
We’re going to continue to drive Colorado, New Mexico and build a really, really strong company in the Southwest in this region. That’s what we want to build and develop. So we’ve been working on, where that leads us in terms of going public on the NASDAQ or the New York Stock Exchange, if and when that becomes available or something else in Canada or down the road. We don’t know.
But we know this, if we continue to be a growth company, if we continue to grow organically, and be — and do really, really good strategic deals on the acquisition side. We continue to drive operational efficiencies and build competitive advantage in market share. We’re going to build something that’s really, really valuable.
And right now, we’re trading we’re trading at roughly in the four times EBITDA multiple in companies and other sectors that look like us that don’t have the EBITDA or the growth profiles or trading 20 times EBITDA. And I think that will happen. So we’re going to continue to work at it, be patient. We’ll have our day, we’ll create value, and we’ll make sure that we create shareholder value and take care of all of our stakeholders.
Unidentified Company Representative
Thank you, Justin and Nancy and Nirup. That is all of the time we have for questions today. If you do have questions that were not answered today, please e-mail them to my attention via the investor website and will ensure that they’re all answered.
Justin, before we sign off, do you have any final remarks before we end the call today.
Justin Dye
As always, I want to first start and thank our customers and patients. We don’t get to do this without them. I want to thank all of our team members who were open seven days a week, not 24 hours a day, but darn you’re close to it. I want to thank them for their passion and their passion for the industry, making a difference.
I want to thank all of our leadership team for the sacrifices and what they do. They work very, very hard. I want to thank our investors for giving us the capital to be able to do what we need to do. And I want to thank those that follow us and move for us and with that goes to us.
Q3-22 Gross Margin and aEBITDA Margin comparisons:SHWZGross margin 60.1%aEBITDA margin 36.7%CURLFGross margin 49%aEBITDA margin 24.7%TCNNFGross margin 56%aEBITDA margin 33%GTBIFGross margin 50.2%aEBITDA margin 32%VRNOFGross margin 54%aEBITDA margin 36.1%CRLBFGross margin 47%aEBITDA margin 20%AYRWFGross margin 41.4%aEBITDA margin 18.1%CCHWFGross margin 39.3%aEBITDA margin 15.8%TRSSFGross margin 36.4%aEBITDA margin 16.9%JUSHFGross margin 38%aEBITDA margin 1%AAWHGross margin 32.9%aEBITDA margin 25%FFNTFGross margin 46.3%aEBITDA margin 28.6%MRMDGross margin 48%aEBITDA margin 25%PLNHFGross margin 41.4%aEBITDA margin 1.5%
Nov 11th SHWZ hit a low of .98 cents today Nov 15th we hit a high of $ 1.76 , id say this may have been the most parabolic move in cannabis in the last few days?
@aconceptsketchgmail-com we got a solid pop in all cannabis stocks yesterday from the news of the passage of the research bill. This is the beginning of the bigger move back upward on all of these stocks. Strap up… gonna be a ride. That being said, SHWZ being one of my top picks is lighting up nicely and I expect that this stock will continue higher. The visits and new subscriptions may drive the top picks which will create a feedback loop.
Lawmakers holding a hearing today and we get a spike, but the tumble normally follows. Hope not this time.
Significant Insider Purchases by the CEO, always a bullish sign
https://ir.schwazze.com/node/10146/html
Recreational cannabis sales skyrocket in New Mexico (11/15/22)
The following article on the New Mexico Recreational Cannabis market was published on November 15th, 2022:
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Recreational cannabis sales skyrocket in New Mexico (koat.com)
Recreational cannabis sales skyrocket in New Mexico
Despite rise in sales, oversaturation is a cause of concern for some.
Jessie Hunt, spokesperson for Schwazze said it’s been a boost for the economy.
“We are continuing to see that people are coming into the legal market to purchase their cannabis, which is wonderful. That is exactly what we want to see in the state. We are able to continue to hire staff, pay strong wages in New Mexico and people really want to work in the industry, which is wonderful,” Hunt said. “We are opening a few more stores. We’re also trying to make sure that we’re doing it in a way that is super responsible for the communities that we’re in and that are in communities that really still have some high demand.”
According to the latest data from the state’s Cannabis Control Division, over $25 million in recreational sales was recorded in October — the highest it’s been since the legalization of recreational sales in April.
However, there has been a decrease in medical sales.
Eli Goodman, CEO of Best Daze said while continuous growth is great for the cannabis industry, there may be challenges.
“The job growth is huge. I mean, companywide, our company alone has over 100 employees. We’re moving through cultivation, manufacturing dispensaries. This is our eighth dispensary opened and we’re one of many groups. So, there’s a lot of opportunity, a lot of growth and a lot of jobs. That’s positive for the economy, gets money in people’s pockets and overall generates tax dollars for the state, and we need it right now as a state,” Goodman said. “There’s no limit on license around production, and there’s a question — when does this market stabilize? Does it get saturated? Are there some people that are going to put money into businesses not be able to keep things going, because it’s an oversaturated market — not be able to make it through that extension where they need some capital to keep it going.”
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It is clear that the New Mexico Adult Recreational Market has been a boon for the sector and Schwazze is keen on gaining market share to grow with the industry growth with goals of ending this year with at least 16 to 17 dispensaries (versus there starting count of 10 at the close of the R.Greenleaf acquisition earlier in the year) and to have 25 dispensaries by September 2023 (as discussed in a recent interview (see link below for more details):
http://www.reddit.com/r/SHWZ/comments/ygryev/nms_cannabis_supply_steady_six_months_in_101422/
During the Q3’22 earnings call, management made it clear that the preferred method of dispensary growth in the New Mexico will be “organic” growth targeting key locations (e.g., Border Towns adjacent to Texas and other markets).
We believe that Schwazze, and its vertical integration strategy, will be key in outpacing the overall New Mexico market in growth (both same-store sales and through greenfield stores).
IRR
https://twitter.com/Ace_Bentura/status/1595474878550810625
https://twitter.com/Ried_Bridges/status/1595977877245382657
This will be huge. Lowell has such excellent quality product.
https://www.reddit.com/r/SHWZ/comments/z2hnbn/safe_banking_tweak_would_be_huge_plus_for/
in Reddit.Posted byu/Affectionate_Fox91015 days agoLatest Batch of Schwazze Insider Purchases of Over 500k shares up to $2.10 per shareThe latest Form 4 filed earlier today after the close of markets show a continuing buy up of shares by management (via Dye Capital):newsfilter.io/a/ea6b8166116d6bbe8177057d5f0458e6
This latest round reflects 509,700 shares purchased at an average share price of ~$2/share with a range of $1.79 to $2.10/share.This purchase of ~$1,019,400 worth of Schwazze common shares are on top of the already ~$1,339,779.8 used to purchase a prior 816,152 shares.www.reddit.com/r/SHWZ/comments/z1mlh6/and_the_schwazze_insider_buying_keeps_on_coming/In total, Justin Dye (via Dye Capital) has purchased ~$2,359,180 worth of 1,325,852 common shares in Schwazze:To put this in perspective, Justin Dye’s background in the private equity arena (e.g., Cerberus) would lend one to believe that Justin would expect to make a minimum of traditional private equity capital market annual returns of between 35% to 45%. If the highest price he has purchase so far is $2.10/share, than that may imply an expected fair value for those shares of around $3/share in the next 12 months (although granted it does not have to necessarily be linear in its growth of appreciation)This continues to be one of the strongest showings of commitment and belief in the value of the shares that I have seen in a while with large investments (e.g., 1,325,852 shares or $2,359,180), spread across multiple purchases and days (e.g., across 7 separate days), and increasingly elevated prices (with the latest peak of $2.10/share).There remains ongoing speculation on why this may be happening:Shares are undervalued given the significant operating free cash flows the company is generating (generating an estimated annualized $24MM in free cash flows as of Q3’22 and growing to a potentially well over $40MM+ annualized run-rate by Q4’23, driven in large part by planned growth in dispensaries through acquisitions in Colorado and organic growth in New Mexico)Rumours of Schwazze being approached by another buyer (I have no confirmation or evidence of this, and I highly doubt this is true as it would be considered insider trading for Justin Dye to be trading on such information)Schwazze is expecting a positive outcome on Safe Plus (i.e., Safe Banking) regulationsSchwazze may be looking to take the company private (this is also the second least likely in our opinion of the five possibilities – 2nd to the rumours of a buyout)Another possibility to consider is that during Q3’22 Justin Dye/Dye Capital had about ~7.6MM in warrants that expired on 9/30/22 (whose exercise prices were $3.5/share). From Dye’s perspective, he is probably getting a bargain at these prices in buying up the shares post the expiration and the earnings call. While I don’t necessarily expect he will buy 7.5MM shares now, those warrants may give us some color as to where his mindset might have been at the end of the third quarter. In many ways, he is now actually able to execute on his original plans by purchasing more shares for the same value he may have set aside for the warrants (i.e., ~$32,441,250, net of registration fees), at a much lower price (than the exercise price of $3.5/share with the warrants), and he is doing so without generating any incremental dilution (i.e., since the warrants he previously had would have meant the issuance of new shares, vs. the shares being bought from the open market which he is doing now). Dye may have waited till now for the warrants to expire worthless, and till after the earnings call in order to avoid “MNPI” concerns – Material Non-Public Information.The above are speculative reasonings to think about in answering the questions of “why?” and “why now?” in regards to Dye’s recent and numerous purchases. (Another factor to consider as a benefit with the new share price levels, is that often times in the past, when acquiring stores, Schwazze has used equity as a large component of the transaction (particularly in Colorado where acquisitions are far easier & possibly cheaper than organic development). Now that share prices have reset to a higher level (and trending higher), this will reduce the dilutive impact of future acquisitions and create more value per share as a result over time.Another benefit is that a new floor with strong returns are being established over the next 12 months. This will reduce the level of shareholders engaging in “tax loss harvesting” at the end of the year (reducing the downward pressure on the stock price as we might have expected to see towards the end of the year).SAFE BANKINGThe Financial Crimes Enforcement Network states, only 755 banks service the cannabis industry out of 4,200 FDIC-insured banks across the country in 2021 with less than 1% offering lines of credit to the industry. This is in large part due to the Schedule 1 classification of cannabis.Passage of Safe Banking or Safe Plus will provide, most notably, an improved cost of capital which, that may yield an improvement in rates down to an estimated 8% to 10% on large ticket items such as the convertible debt that Schwazze currently maintains (i.e., $98.137022MM @ 13% interest). Those debts carry a current interest rate of 9% in cash and 4% in PIK (i.e., 13% in total). If that debt and the other high interest debts (e.g., the Term loan of 15%) can be refinanced down to a term loan of 8% to 10%, this will yield a savings of ~$3MM to $5MM in reduced interest expense (i.e., generating an increased value of an estimated $30MM to $50MM).IMPORTANT: PARTIAL ROADBLOCK ON REFINANCING CONVERTIBLE NOTEThe convertible notes referenced above (aka “Investor Notes” in the SEC filings) allow for a conversion at $2.24/share subject to the below early redemption penalty.Unfortunately, The Investor Notes have the following early redemption penalty which may make it a difficult matter for conversion of the notes by Schwazze for some time (i.e., the next two years) or until the share price achieves a certain level higher than conversion price as noted in the prior 8-K report filed on December 9th, 2021 (see link and excerpt paragraph below):ir.schwazze.com/static-files/6dc8709b-3755-4f11-acdb-4e9a60b5d27e” The Company may, at its option, elect to redeem all, but not less than all, of the Notes for cash, subject to certain conditions, at a repurchase price equal to the principal amount of the Notes plus accrued and unpaid interest thereon on such date, plus the greater of: (i) the sum of the present values or the remaining scheduled interest payments that would have been paid on the Notes from the repurchase date to the third anniversary of the Issuance Date or (ii) the lesser of (a) the sum of the present values of the scheduled interest payments that would have been paid (assuming such payments are made in cash) on the Notes from the redemption date through the one-year anniversary of the redemption date or (y) the sum of the present values of the scheduled interest payments that would have been paid (assuming such payments are made in cash) on the Notes from the redemption date through the maturity date. If the Company elects to redeem the Notes, holders of Note may require the Company to convert their Notes in lieu of receiving cash in the redemption. “In calculating the “greater of” present values referenced in the above excerpt, this would effectively mean that the SHWZ shares would need to trade above ~$2.60/share (i.e., the conversion price + the present value of payments) in order for it to be worthwhile for the Investor Note holders to convert rather than accepting the cash payment. If the Investor Noteholders refuse to convert, than SHWZ would be required to pay an early penalty of over ~$15MM to $16MM today.Additionally, there may be a conflict of interest in that four of Schwazze’s Directors are investors in the convertible note instruments (as noted in the previously mentioned 8-K filing – see excerpt paragraph below):” Three of the Company’s directors, Jeffrey Cozad, Jeffrey Garwood and Pratap Mukharji, were Investors in the private placement on the same terms as the other Investors. Also, Marc Rubin, an individual affiliated with CRW Cann Holdings, LLC, an entity controlled by Marc Rubin and Jeffrey Cozad and a significant holder of the Company’s Series A Convertible Preferred Stock with the right to designate one director, was an Investor in the private placement on the same terms as the other Investors.”It is unclear to me if the four directors noted above would or would not act in their own self-interest in deferring the redemption/refinancing of the Convertible Note even if the shares traded above the ~$2.60 threshold (so as to retain an ongoing high yield of 13% interest of which 4% is a PIK). We will have to wait and see how SAFE Banking plays out and what the share price is at that time if and when refinancing becomes an option.In the meantime, Schwazze, already generates operating free cash flows, net of one-time expenses, of ~$6.1MM/quarter or, alternatively, $4.1MM/quarter if you include the one-time items as per GAAP accounting:www.reddit.com/r/SHWZ/comments/yodjhj/schwazze_q322_revenue_ebitda_forecast_estimate/Post-safe banking passage we can expect actual Free Cash Flows to improve by ~$1.6MM to ~$3.8MM per year (or, equivalently, to ~$24.4MM to ~$28.2MM when combined with annualized the operating free cash flows) due to lower rates of financing for all debt instruments including the Investor Notes (with the expectation that rates could be refinanced to a range of 8% to 10%).Additionally, major credit card companies currently don’t service the industry, which means most transactions at state-legal marijuana stores in Colorado and New Mexico are in cash. SAFE Banking has also the potential to enable credit card usage by Schwazze Customers who are currently limited to Cash, Debit, Apply Pay and other similar type methods. If SAFE banking is launched, this new ability to accept credit cards will broaden the customer base and potentially lead to more customers, more orders per customers, larger basket sizes per order, and stronger revenues overall.On top of that, SAFE Banking, Schwazze may be able to open checking accounts, lines of credit, and pay taxes electronically,In general, multiples on MSOs will likely trade upwards on the news of Cannabis reform (even if it is just SAFE Banking) and the rising multiples will help elevate Schwazze even further.280(e)This remains the elusive golden goose which, if Marijuana is ever declassified from a Schedule (1) drug, would potentially boost free cash flows by an estimated ~30% to ~40%. There is little indication of any significant effort to declassify Marijuana in the lame-duck session of Congress which will likely mean that it will be an item to be addressed in 2024 or 2025.FREE CASH FLOW (FCF) ANALYSISI wanted to determine what the free cash flow yield at current prices would look like under two different scenarios.Two Scenarios:Scenario One: “AS IF CONVERTED”: Let’s start with a fully diluted “as-if converted” shares of ~192MM at the end of Q3’22 (see table below). We also have an idea of what the Operating FCF (excluding one-time expenses) is around $6.1MM per quarter and annualized around $24.4MM. We then add back the Annual Interest Expense of $8.744833MM associated with the Convertible Note (and note: we do not need to adjust for taxes, since interest is not tax deductible under 280(e)). Then with we can take all that information combined with the current share price of $1.95/share, to calculate a FCF Yield of ~8.9%. Which isScenario Two: “PARTIALLY AS IF CONVERTED”: Alternatively, if we leave the Convertible Note uncoverted, then the fully diluted “partially as-if converted” share count would be ~147.78540MM shares and using the operating FCF of $24.4MM, we can calculate an ~8.5% FCF Yield.r/SHWZ – Latest Batch of Schwazze Insider Purchases of Over 500k shares up to $2.10 per shareThese operating free cash flow yields will continue to grow as Schwazze acquires more assets in Colorado and develops organically more assets in New Mexico over the next twelve months (estimated to be between 55 to 60 dispensaries by the end of Q4’23 of which 25 will be in New Mexico and an estimated 30 to 35 in Colorado by Q4’23 – see link below for more details).www.reddit.com/r/SHWZ/comments/ygryev/nms_cannabis_supply_steady_six_months_in_101422/COLORADO & NEW MEXICO MARKET ACQUISITIONS & DEVELOPMENT STRATEGIESColorado growth can be funded from both their existing balance sheet ($ 38.725187MM) and recurring quarterly FCFs (i.e., between $4MM and $6MM each quarter) over the next 12 months. This would provide ample capital of between ~$55MM and $63MM in cash available to more than fund the acquisition or development of the additional dispensaries noted above.If we assume Colorado Market TAM is $1.8Bn/annum (returning to Pre-pandemic levels) with ~655 Adult Use stores, and an average EBITDA margin of 15% to 25%, with management target acquisition prices ranging from 3.5x to 4.5x EBITDA (although, in today’s environment, we would hope for pricing to be towards the lower end of that range), then we can calculate the following items:Average Revenue / Adult Use Store: $2.75MM per annum (although we are aware that SHWZ stores typically average close to $5MM per annum, but that may not be the baseline of what they are purchasing).Average EBITDA: ~$400k to ~700k per annumEstimated Cost of Acquisition: ~$1.5MM to ~$3MMCash Available for Acquisitions: $55MM to $63MM less funds held in reserve of an estimated $15MM to $20MM per loan terms and operations. This would leave $35MM to $48MM available for acquisitions.Colorado Acquisition Estimates: Estimated # of Stores in Colorado that SHWZ could acquire over the next 12 months: Max: 32 and Min: 11, or a median of 22 dispensaries.Schwazze, as of the Q3’22 earnings call had 35 operating dispensaries with 23 in Colorado (19 Starbuds, 4 Emerald Fields) and 12 in New Mexico (and has since then has added 1 more dispensaries with 2 to 3 more on the way from New Mexico). They should end the year with 38 to 39 dispensaries in total. Our expectations is that they will acquire between 7 to 12 additional dispensaries in Colorado to reach 30 to 35 dispensaries by the end of 2023 in Colorado and have sufficient capital and cash flows to achieve that goal without further equity dilutive capital raises or debt capital raises.Transaction Financing Alternatives to Cash: the transactions noted above do not take into account that Schwazze has multiple other levers they can pull to stretch the acquisition and development capabilities of their cash balances, including, but not limited to: a. Seller Note Financing, b. Equity (Common or Preferred) in lieu of cash, and c. Earnouts.New Mexico: Currently, R.Greenleaf stores average $4MM to $4.5MM in annual revenues per store and has plans to organically add dispensaries over the next 12 months in order to reach 25 total dispensaries by September 2023 (see link below for details on forecast):www.reddit.com/r/SHWZ/comments/ygryev/nms_cannabis_supply_steady_six_months_in_101422/If Schwazze is successful in achieving these growth targets for its dispensaries in both markets, they should be in a position by the end of 2023 to generate an annualized run-rate of Operating Free Cash Flows of well over $40MM by Q4’23 (possibly even close to a ~$50MM run-rate in operating FCF in Q4’23).The >$40MM Operating FCFs would lead to a minimum FCF Yield of ~12% under Scenario One and ~13% under Scenario Two, both on a 1 year Forward Basis.THIS IS ALL without SAFE Banking/Safe Plus 280(e)/Schedule-1-Declassification being enacted.We maintain our 12-month price target at $3/share which is based on both Adjusted EBITDA multiples as well as FCF yield analyses on the existing operations and cash balances.With successful growth in further acquisitions/developments of Dispensaries/Revenues; maintenance of existing margins and the passage of Safe Banking or Safe Plus, we can see this target adjusting upwards and drifting closer to $4/share.Should Cannabis be declassified in the future from a Schedule 1 drug (which we are not expecting in 2023), than we would expect share prices to fall between $5/share to $6/share.In the end, Schwazze is one of the best run management teams in the cannabis sector and we remain bullish on the prospects of the company over the next twelve months as it continues to outpace its peers in Sales Growth, Gross Profit and EBITDA Margins, Operating Free Cash Flows, and Relative Same-Store Sales comparisons against industry market segment metrics.IRR(If you like what you read, feel free to:”Like” this postShare these posts with others to spread the word,Join our reddit subgroup for free if you haven’t already,
https://www.prnewswire.com/news-releases/schwazze-opens-cannabis-dispensary-in-new-mexico-serving-los-lunas-community-second-rgreenleaf-store-to-open-within-a-week-301692941.html
@aconceptsketchgmail-com Just stopped in and had a look at the store across the street from University of NM. They picked a bad day to start which, I joked with them on that. The students left yesterday after finals. Won’t be back until the 2nd of January. But, this gives them time to finish getting set up – they were still putting things on the shelf.
Learned two interesting things:
First, the Lowells are available. But, it is R.Greenleaf strain inside, not Lowell. Still, packaging is the same with the box and the matches. There were Schwazze products there, obv. But, these are grown/produced in NM.
Second, there are some Cheech & Chong products there and, that means there is a relationship there. Planet 13 does Cheech & Chong products.
I can envision many M&A moves in the future. I cannot see Schwazze being a stand-alone company forever. This would mean they merge with others, and this would mean future cost savings. If Planet 13, Lowell, Schwazze, and Ascend were to all combine, that would be powerful. And, profitable.
40 Dispensaries
https://finance.yahoo.com/news/schwazze-brings-total-retail-dispensary-110000948.html
New Locations. Schwazze filed a form 8-K Tuesday night detailing the agreement to purchase two new Colorado locations from Smoke Holdco, LLC. The purchase is for two dispensaries, one in Fort Collins and the other in Garden City, CO. The purchase price is up to $7.5 million, with $3.75 million in cash and $3.15 million in SHWZ shares payable at closing. As always, closing is dependent upon state regulatory approval.A Move North. The two new locations represent a move by Schwazze into northern Colorado. Fort Collins is approximately 65 miles north of Denver, while Garden City is about 60 miles northeast of Denver. Previously, the most northern location was about 30 miles north of Denver in Longmont. Fort Collins is about 45 minutes south of Cheyenne, Wyoming, a state in which cannabis remains illegal. https://www.channelchek.com/news-channel/schwazze-shwz-two-new-colorado-locations