Earnings Call: Q2 2021

Aug 16, 2021

Good morning, and welcome to the Miu Med Inc. First Quarter 2021 Earnings Call. With us on today's call are Bob Fireman, CEO of MarioMed and John Levine, MarioMed's Chief Financial Officer. Today, management will review the highlights and financial results for the first For the end, we'll give a business and operational update. Following management's prepared remarks, there will be a Q and A session. During the Q and A portion of today's call, we ask that A reminder that today's conference is being recorded. I would also like to remind everyone that during today's call, management will discuss the company's business outlook and make forward looking statements. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in filings with the SEC. These comments are made based on predictions and expectations as of today and other than as required by applicable securities laws. The company does not assume any obligation to update or revise them to reflect new events or circumstances. Now at this time, it is my pleasure to introduce Bob Fireman, BioMed's CEO. Bob, the floor is yours. Thank you, operator, And good morning, everyone. I'd like to start this morning's call with selected highlights of Ma'am, that's Q2 Q2 2020 1 performance and then provide an update on the company's developments, including the execution of our strategic growth plan. After that, I'll pass the line to John to review our financial results in more detail. I am extremely pleased to report We achieved our highest ever revenue and profitability during the Q2. Our revenue increased $32,600,000 a 2 39% increase compared to the same period in 2020 And a 32% increase compared to our Q1 2021. Our adjusted EBITDA Increased to $13,900,000 a 3 91% increase compared to the same period in 2020 and a 73% increase compared to Q1 2021. Our gross margins were also excellent At approximately 60% compared to approximately 54% in Q1 2021. We are incredibly proud that our disciplined approach to financial controls and operation excellence Delivered significant growth, balance sheet strength and free cash flow, all hallmarks of a well run company. So what were the factors and drivers that contributed to this strong performance? The groundwork started in late 20 2019, continued throughout 2020, when we completed the acquisition and consolidation of our Illinois and Massachusetts Businesses into Maramut. It was not until the Q3 of 2020 that we ramped up adult use sales at Three dispensaries in Illinois and the one in Massachusetts. That revenue has rolled nicely Into our 2021 reporting with an additional dispensary in Illinois open and hopefully more to come. The first driver was the increase in the wholesale sales of the company's Nature's Heritage High Quality Cannabis In Massachusetts, as our New Bedford cultivation and production facility is now firing on all cylinders. Our craft growing approach to cannabis cultivation, which starts with the finest genetics and seeds, our hands on bordiculture principles combined with automation and technology advances has fueled higher volume and Consistent Quality at Scale and has earned Maromed the reputation of a best in class grower in the markets we serve. A second driver was the spike in revenue at our retail locations in Illinois, Massachusetts. We opened Thrive Metropolis, our 4th Illinois dispensary in the Q2, joining us 3 other Thrive branded adult use dispensaries that had opened during 2020. Thrive Metropolis, located in the fictional home of Superman, Has exceeded expectations. I am thrilled to report that its revenue contribution to the quarter was nothing short of heroic. In Massachusetts, our Pannacia Wellness dispensary in Middleborough continues to increase its recreational customer And medical patient count and its average sales ticket size as well. The 3rd driver was an increase in sales and licensing fees associated with Maromed's award winning product portfolio, including our Betty's Eddie's Vegan Chew brand, our Nature's Heritage premium flower brand, our Comfuse and Precision Dose chewable mint brand and others. Maramed's brands are now available in 6 states in Puerto Rico, and we expect more to come. I should take a minute to call out Betty's Eddy's in particular, which has grown to become one of the most popular edible brands in the industry. Betty's is the top setting edible brand in Massachusetts and Maryland according to BDSA data, Which isn't a surprise considering the consumer and editorial accolades it receives and the awards Betty's brand regularly wins. Last month, Betty's was named the hottest edible in Massachusetts by the influential pop culture website, respectmyregion.com with consistent taste, texture and experience. We have another winner coming soon in the infused ice cream line of products we announced a few weeks ago. We are thrilled to be collaborating with a fellow Boston based company, the legendary Emac and Boelios On a vegan and dairy cannabis infused ice cream brand that we will launch later this year. The pairing and blending of our best in class cannabis formulation with EMAC and Volio's Quality and outrageous flavors should result in an ice cream experience that consumers will love. We will soon introduce a line of infused powdered drink mixes seizing on this very hot consumer category. Increasing management fee income resulting from higher revenue and continued success of our managed cannabis license clients was our 4th driver. Let me reiterate that a core component of our strategic growth plan is to consolidate these highly valuable businesses into our company So that we can realize the total revenue in our financial reporting. As we continue in the second half of twenty twenty one, Our focus is on the following. 1st, we're working to complete the acquisition and consolidation of our clients' businesses That we developed and managed. 2nd, continuing to grow organically all of our businesses As we have been doing successfully quarter over quarter, we have a solid platform, great brand, a deeper team of experts in marketing, sales and communication to support this growth. We recently added some key individuals to our leadership team. Robert Hall, formerly of Boston Beverage, is serving as a senior advisor to oversee our brand strategy and help us expand our brand product sales, marketing and licenses Howard Schachter, Chief Communication Officer, who joined Maromed to get our story of success To the public and capital markets, just as he has done for companies like McDonald's, Facebook and others in cannabis and Kevin Campania, Vice President of Wholesale and Licensing Sales, who brings the company decades of sales experience in the alcohol industry. Our 3rd focus will be to identify opportunities to expand the company's footprint, both deeper in existing states moving to new states. We are eager to become fully vertical in Illinois and bring our great plans and portfolios of products To complement our strong retail sales. We continue to develop plans to open 2 new licensed dispensaries In Massachusetts and are working on plans to do more in other legal states. And we're glad to entering new states. We have a proven track record in winning licenses through the application process and we'll seize opportunities In new and expanding legal markets in the Northeast, Midwest, M and A is also on our radar. We are considering several options to acquire companies that would be accretive to our business and share our vision to be a trusted source of quality cannabis products that will improve the health and wellness of our customers. We require likeminded management who is committed to manufacture consistent precision dose quality products. They must also have a similar workplace culture and share our commitment to diversity, inclusion, Social Justice, Environmental Sustainability and Corporate Governance. Finally, Our 4th focus for the remainder of the year will be to continue investing in our existing cultivation and Processing Capabilities, both in terms of facility expansion and innovation. We are expanding our product facilities In Delaware and Maryland in the near term and expect to do the same in Massachusetts next year. More Canopy, new GMP compliant kitchens, additional testing and lab equipment and new automated technologies We'll increase efficiencies, volume and quality of our products, while lowering our production costs to improve our profitability. Our platform of great assets and brands, the continued implementation of our strategic growth plan and our successful EBIT The significantly strengthened our financial position have all come together nicely. NowaMed is well positioned On a solid foundation for continued success during the second half of twenty twenty one and well into the future. I have never been more confident, energized and excited about the future of Marimed than I am at this moment in time. I have every confidence that our hard work and achievable plan will soon create incremental stockholder value. We have all the elements to soon elevate our position in the tiers of cannabis industry MSOs. Ben Zucker recently called us the best kept secret in cannabis. We appreciate that acknowledgment, But it's because our stock trades at such a discount against our peers, and we don't want this title to continue. We know we will be rewarded by communicating our story of success out there, staying focused on the task at hand every day and delivering excellent financial results. To conclude, I'm incredibly proud of what we have achieved this quarter, And I look forward to continuing to drive strong long term value to our stockholders. We make this commitment on behalf of our incredible national and local marketing teams who are at the heart and soul of what makes Maromed a very special company. Now I'll pass the call on to John Levine, who will review the financial results of the quarter. John, take it away. Thank you, Bob, and morning, everyone. Today, I'll provide a brief overview of our Q2 2021 financial results. As Bob noted, in the Q2 of 2021, Our revenues increased 2 39 percent to $32,600,000 compared to $9,600,000 from the same period in 2020. Gross profit on revenues increased by 2 15 percent to $13,200,000 For the Q2 of 2021 compared to 3.5 for the same period in 2020. Sequential growth compared to the Q1 of 2021 saw an increase of 32% in revenue and 40 7% and gross profit. As Bob mentioned, there were a number of factors that contributed To the improvement in revenues and earnings during the Q2, including the increase of wholesale from our New Bedford, Massachusetts Cultivation and Manufacturing Facility increased recreational sales at our dispensaries in Middleborough, Mass Substantial same store sales growth from the company's 3 previously owned Illinois dispensaries as well as the opening In May of 2021 of Thrive Metropolis Dispensary and the management fee revenue in the Q2 of 20 21 versus the Q2 of 2020 from the continued success of the company's managed cannabis license clients in Delaware and Maryland. Operating expenses for the Q2 of 2021 were $7,800,000 compared with $4,100,000 in the same quarter of 2020. Contributing to the increase was the growth of operations at both new and existing locations. We are reporting adjusted EBITDA for the first time this quarter. We believe it's more accurately mirrors Operating cash flow and EBITDA, and it's consistent with how most of our peers report their results. As a result of the above performance diverse factors, we achieved an adjusted EBITDA of $13,900,000 and an EBITDA of $12,300,000 for the quarter, which represents an increase of 3 91% and 4 40%, Respectively, over the same period in 2020, an increase of 73% 61%, respectively, Compared to the Q1 of 2021. Net income for the Q2 of 2021 was $7,600,000 Compared to a net loss of $1,100,000 in the Q2 of 2020. Our cash position strengthened significantly during and during which we generated $10,800,000 in cash from operations compared with $6,800,000 in the Q1 of 2021 and $900,000 in the Q2 of 2020. Cash and cash equivalent increased to $17,400,000 At June 30, 2021 compared with $3,000,000 at December 31, 2020. Total working capital increased to $24,300,000 at June 30, 2021 compared to negative working capital of $2,200,000 at Twelvethirty Onetwenty. For further On financial and operating performance, I encourage you to review the company's 10 Q, which has been filed and is available atwww.sec.gov. Based on the strength of our performance to date, We are revising our guidance for 2021. Revenue to $118,000,000 from 100,000,000 In EBITDA, the $32,000,000 from $30,000,000 Additionally, we are adding guidance for adjusted EBITDA for the first time at $42,000,000 for 2021. The guidance includes excludes any potential new acquisitions, M and A or new facility locations for the balance of this year. However, management is consistently looking for opportunities that would be attractive to our earnings. Maromed's management is confident that the positive momentum of revenue and earnings will continue through the remainder of 2021 and even better in the future as we continue to Cureda's strategic growth plan. This concludes our prepared remarks. Now I'd like to open for the call for questions. Operator, go ahead. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Newly of 3 tone pro, acknowledging your request and your questions will be pulled in the order that you are received. Your first question first question comes from Glenn Mattson with Ladenburg Thalmann. Please go ahead. Hi, good morning and thanks for taking the question and congrats on the results. So impressive cash generation for sure. So nice to see that. So curious, I think CapEx for the first half was kind of in that $7,000,000 to $8,000,000 range. You talked about investing in cultivation and some other assets. Can you give us a sense of what CapEx would be for the remainder of the year? Bob, do you mind if I take that one? Yes, go ahead John. Thank you, Glenn. Thank you, Glenn. Yes, we're in the process of Leading a expansion in the state of Delaware where we're building out an additional 60,000 square foot Cultivation Center and a brand new state of the art commercial kitchen. We'll be spending another $2,500,000 there. And then we're working on expansion of a kitchen In our Maryland location, which will cost us approximately another $2,000,000 So we're looking at Spending that on the existing facilities over the next two quarters and we're still looking at adding some additional CapEx for Additional retail stores both in Massachusetts and in Delaware. Great. Thanks for that. And then, Bob, can you give us a sense on the priorities on the M and A front. So you talked about going vertical in Illinois and then potentially looking at other opportunities. So just give us a sense of which is how those two Objectives rank and just how aggressive you're being as you look out there and as far as like pricing And how comfortable you feel with what's out there now versus what you have capacity to do. And that's it for me. Thanks for the questions. Thank you, Glenn. I think when you look at our strategic growth plan, Obviously, we're going to work initially to consolidate the businesses that we built and operate and grow organically. However, as our stock price gets to where we need it to be and we get a proper multiple, We've become more active in the M and A world. Right now, we're looking to partner with some of the folks that Just won these additional craft licenses in Illinois. The state issued there's going to issue 65 of them. If we could partner that and get a production and cultivation And we could add up to 10 dispensaries and be vertically integrated in a great cannabis state like Illinois. We have conversations going on with folks in Michigan and Missouri. We're actively looking to apply for new licenses in Connecticut, New Jersey and New York as these states throw out new RFPs and have new opportunities. So we like great states. We look to find some single operators, entrepreneurs That share our vision and our value and would like to be part of something bigger. We don't go out and get into the large auctions With some of our larger MSOs, because we're business value guys and we're very careful with our cash. So yes, M and A is going to be big and thank you for the question. Thank you. Your next question comes from Kyle Bauser with Collier Securities. Please go ahead. Great. Thanks. Good morning. Thanks for all the updates. Incredible Bob, here. I want to talk a little bit about what you're seeing in the Metropolis, Illinois store. It's obviously exceeding expectations significantly. Are there any features or characteristics This store that you can call out that's kind of led us to success. I'll touch on once you want. I mean, we I mean, when we heard We're going to Metropolis, the home of Superman. I don't know who's old enough on the call to know Superman and the Daily Planet and Perry White and stuff, but we took over a facility that was a car dealership And it's on the Kentucky border near Paducah. It gets an amazing tourist attraction in the summer months And gets a lot of flow from out of state and the people in Southern Illinois. When we wind up to cut the ribbon, There were 400 people online and the steady traffic has been incredible. They just ran a supermarket event out there, Superman, And hundreds of thousands of people show up as Superman and Superwoman and there's a lot of activity. So that store He's killing it for us and we expect that to continue well into the future. Yes, Bob, I'd like to add one more I'd like to add just one more statement that when you were asking, Kyle, you were asking about what we changed differently there. That location is our largest Location in Illinois, and we have enough sales counters to handle the demand that comes in on a daily basis. So the attraction also is the size of the retail floor. That's great. I appreciate that. And then my next question is just around the launch of ice cream later this year. And are there any sort of logistical things that you're thinking about as you work To roll that out, I know it's a new offering. Just kind of wondering how you're thinking about that from a logistical standpoint. Thank you. Hey, Kyle. We're amazingly the quality of the product we test marketed and The results have been fantastic, especially it's a vegan product and People think it's cleaning and there's no cleaning in it. The logistics our team is working through, obviously, It's now it needs to be frozen. It needs to be delivered to dispensary. In the dispensaries, they need to have freezes in their limited vault space and the challenges of childproof Bags and packaging and allowing it to go into bags when the consumers buy it so that they can get it home within an hour or 2 And make sure it's still frozen. So those questions we've answered. We've watched stuff. Our team is doing a complete cash Operations Flow, we should be testing that in September October, and we're going to try it in Yes, 1 to 10 dispensaries. And once we have all the systems out, we will ramp it up and roll it out in Massachusetts originally And then to our other states. So we're really, as our friend at Emax says, we're stonerlicious And it's an incredible product. No, that's what it sounds like. Well, appreciate all the Thanks, Pierre, and congratulations on the phenomenal quarter. Thank you, Kyle. Thank you. Your next question comes from Eric DelOriere with Craig Hallum. Please go ahead. Great. Thanks for taking my question and I'll ask my congrats again on impressive results here, guys. First, I was wondering if you could Are you guys able to break out the revenues in the quarter between wholesale, retail and fees? Yes, I can. Cannabis sales were 70 2 percent retail Versus 28% wholesale for the quarter. That's an increase in our wholesale from 2020, where we were only at 14% 86% of the retail. It's a 43% wholesale increase on the sequential quarter to quarter. Okay, great. And are you guys getting much in brand licensing fees? Or is that rather immaterial at this point? I just didn't see it broken out, so apologies if I missed that. Yes. No, it's about 5%. Okay, great. I appreciate that color there. And then can you just remind us how we should expect I guess how you guys expect that mix to change as you execute on that consolidation plan? And maybe remind us of the timing and remaining hurdles Needed to complete that plan. Thanks. Bob, do you want this or do you want me to take it? Go ahead, John. The wholesale business with the consolidation plan would increase as Maryland has a a larger wholesale business and has the retail also. But with Delaware, if we're able to Combine that, right now there is no wholesale business. It's a seat to sale location. So that would be mostly just Sale of retail, so that would if we were able to roll that up with the conversion from a not for profit to for profit, We'd be able to generate more revenue, but that would be considered retail, which would put it back to the skew of more retail sales versus wholesale. As we go in Nevada, Nevada would be a full wholesale market, so that would also increase our Percentage of wholesale. So as we roll up, it depends on what the market is, but we would be able to bring it closer to About 40% of wholesale as we close more of these transactions. Bob, do you want to talk about timing? So, Eric, our timing is ASAP. Obviously, we have some state approvals that need to get passed. In Delaware, we're looking obviously, when the state goes to recreational, that becomes available. And in Maryland, we have the lawsuit we reported, but we're working to try to settle that as well. So we'd like to consummate that and hopefully have some moves that we can report In the next 60 days. Okay, great. Well, that was very helpful color. I appreciate that. Last one for me here. I know that the improvements you're making in Delaware and Maryland are mostly on the kitchen and processing side versus Just kind of expanding cultivation, for example. So to the extent that you're able to answer it, I was just wondering if you could provide any color What kind of increase in volumes you guys are expecting with those CapEx projects in Delaware and Maryland? Thanks. Those are managed facilities, we're unable to discuss the increase Of the revenues there, because we do not report their revenues. But those facilities, we're also in I think you misstated Delaware, we're building out An additional 60,000 of cultivation, which will more than double their capacity. Okay, great. All right, great. Thanks, guys. Thank you, Eric. Thank you. Your next question comes from Andrew Sample with Echelon Capital. Please go ahead. Hi, congrats on the strong quarter and thanks for taking my questions here. First one from me. I just wanted to get your team's opinion on the new retail licenses issued in Illinois And additional retail stores coming into that marketplace. Do you expect that to have any impact on your business at all? And the storage rollout sooner rather than later, would you perhaps maybe accelerate your plans to look at Illinois cultivation and wholesale, Perhaps more in the near term rather than kind of after those stores open. Thank you. Yes. Thank you, Andrew. Governor Pritzker rolling out this lottery Has changed the dynamic of what's available. Obviously, the big limited license is original Cultivators control the marketplace, but these craft licenses that allow initially 15,000 feet of cultivation can be stacked by the end of the year. So as we sit Under current law, Maramec can own up to 10 dispensaries and those ping pong balls are dropping And there's another lottery following this week. So we're in contact with some of the winners And our goal would be to roll up another 6, because if they need a partner That knows how to do it and wants to be bigger with us. It would be great. And if we could partner on 2 of these Craft licenses, we would have 38,000 feet of canopy, if not more, and 10 dispensaries, And we will be a major player in Illinois. That's great. Thanks for that. My next question here, I just want to make sure I understand the revenue guidance that was put out for 2021. You raised it to $118,000,000 for the full year. Given that you did $57,000,000 in the first half, that would Imply about $61,000,000 in the back half. That would actually be a little bit below your current Q2 run rate. So do you have any comments whether you're expecting any pressure on the business in the back half or seasonality? Or do you think the guidance there is Just maybe a little bit on the side of conservatism. I just want to see if you had any color on that. I would say that we're being slightly conservative and expect to beat the revenue estimates. It's just that we're being overly conservative at this moment. Got you. Thank you very much. Thank you, Andrew. Thank you. Thank you. There are no further questions at this time. Mr. Fireman, you may proceed. Well, thank you, ladies and gentlemen. I'm very pleased that we have delivered our strongest quarter of financial results ever to our stockholders In the Q2. While I'm so proud of our experienced management team, which has been together for over 10 years, I want to give special thanks to the entire management team from the cultivators to the dispensary operators For their continued hard work and dedication. As I commented earlier, it is their passion and dedication that makes Marimed a very special and unique cannabis company. We look forward to updating You on our continued progress. Thank you all so much for joining us today and have a great day. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.