Good morning, welcome to today's conference call to discuss StateHouse first quarter 2023 financial results. A press release detailing the financial results was distributed prior to the call and is available on the investor relations section of the StateHouse website. On the call today are Edward Schmults, Chief Executive Officer, and Kavi Bhai, Chief Financial Officer. Listeners are reminded that certain matters discussed on today's conference call, or answers that may be given to questions asked, could constitute forward-looking statements that are subject to risk and uncertainties relating to StateHouse future, financial, or business performance. Actual results could differ materially from those anticipated in the forward-looking statements. The risk factors that may affect results are detailed in StateHouse's annual information form and other periodic filings and registration statements. These documents may be accessed via the SEDAR database at www.sedar.com.
Any forward-looking statements made today on this call are based on assumptions as of today, and StateHouse assumes no obligation to update these statements as a result of new information or future events. I'd like to remind everyone that this call is being recorded today, Wednesday, May 31st, 2023. I would now like to introduce Edward Schmults, Chief Executive Officer of StateHouse. Please go ahead, Mr. Schmults.
Thank you, Kevin, and thank you everyone for joining us today. I'm excited to update you on our recent progress. During today's call, I'll provide an overview of the business and our achievements during the first quarter, before turning it over to Kavi Bhai, our CFO, who will review in detail our Q1 2023 financial results. We're off to a solid start this year, supported by the foundational work we achieved through the strategic business combination we completed last year. We built a strong foundation for growth, which we believe gives us significant potential to further solidify our position as an industry leader. The cannabis market in California has been challenging. Tough competition from legal as well as illicit sources, a rigorous regulatory environment, and a lack of readily available capital have made life difficult for cannabis operators in California.
However, there are some bright spots for us. We have continued to make progress, driving efficiency and reducing cash burn across our organization. As reported in our press release, we have reduced expenses $3 million from the prior quarter, or $12 million on an annualized basis. Headcount, which was over 800 at the time of the merger, is down to 385 today. Since December of last year, we've begun to see signs of improvement in wholesale cannabis prices in California. This has been driven by extreme weather events, which have impacted yields of outdoor-grown cannabis, as well as a significant reduction in licensed canopy across the state as growers exited the market due to poor returns from low prices paid for bulk cannabis in 2022. We plan to capitalize on this opportunity and strengthen our position in the market.
We take immense pride in our commitment to growing high-quality cannabis and turning it into high-quality products. Additionally, we are thrilled to report that our contract manufacturing business, an area of focus, has significantly expanded. We've been nurturing our relationships with select cannabis breeders to foster a strong breeding program, and through careful selection of genetics and meticulous cultivation, we've been consistently able to further enhance the quality of our own brands, resulting in superior consumer products that stand out in the market. In connection with our efforts to source high-quality genetics, we recently entered into a cultivation partnership with Refined Genetics. Refined Genetics is an industry leader in the genetic development and commercial propagation of world-class cannabis cultivars. Under the program, StateHouse and Refined Genetics will run a genetics trialing program.
Harvested flower from the trial will be evaluated by StateHouse, who will then select and self-propagate the highest performing genetics while honoring a royalty on every plant harvested. We joined the Cannabis Research Coalition, also known as the CRC. This is a collaborative research partnership between the Hemp and Clemson University to address cannabis cultivation and post-harvest challenges. Through our participation in the program, we will benefit from the cooperative research model, which will give our team access to tools and information to further improve our quality and yield in this competitive landscape. We firmly believe that collaboration between leaders in the marketplace is one of the best ways we can contribute to the continued growth and improvement of the cannabis industry in California. With the infrastructure investments we're making at our Salinas facility, we have seen robust yield improvements in our harvests.
New genetics are enhancing the potency and terpene profile of our products. We're hitting on all cylinders now as we enter the peak growing season in the Salinas Valley. Our manufacturing operations are benefiting from the implementation of automation processes, such as new automated pre-roll machines and an upgrade to our trimming machines. We expect these functionalities to be fully operational by the end of the second quarter, with the benefits beginning to be realized in the second half of the year. Looking at our retail business, we are prioritizing customer loyalty by taking a multifaceted approach. We launched our TOPS program, one of the highest value loyalty programs in the industry, designed to reward our valued customers for their continued support.
This program offers an enticing incentive to shop with us, with 1 point per $1 spent, excluding taxes, as well as 1.5 points for $1 spent on in-house brands, which include Kingpen, Kingroll, Fuzzies, Sublime, Urbn Leaf, Loudpack, Smokiez, Harborside Farms, and Dime Bag. This works out to roughly a 10% discount on members' next purchase. By tailoring our loyalty program to deliver significant value to our customers, we're fostering a sense of belonging and appreciation, ultimately strengthening their loyalty to our stores and our brands. Since the launch of the TOPS program, approximately 261,000 participants have enrolled in the program. The customer response has been phenomenal, and loyalty members' average spending during the first 90 days of the program was approximately 18% higher than non-loyalty customers, with a 24% faster return rate than non-loyalty members.
We recognize that providing new and innovative product offerings at consumer-friendly price points is also crucial to keeping our customers engaged and satisfied. Our new loyalty program provides us with significant consumer insights and enables us to continuously research brands and buying habits to develop innovative and exciting new products. Driven by our consumer insights, we have rolled out a number of new products so far in 2023, including our Dime Bag branded Liquid Diamond Infused Pre-Rolls. These pre-rolls offer a convenient and potent experience at an affordable price, ensuring true value. Products are available at all our California retail locations, as well as in the wholesale market across California. The opening of our new Urbn Leaf dispensary in West Hollywood has been met with an overwhelmingly positive customer response. Our inviting ambience, knowledgeable staff, and diverse product selection have resonated with customers.
Notably, this new location has not only met its initial growth targets, but has surpassed them well ahead of schedule, showcasing the immense demand at this location and the effectiveness of our strategic planning. Through our unwavering focus on consumer-centric strategies, we aim to establish long-lasting relationships with our customers. This commitment ensures their loyalty, propelling our sustained growth and delivering value to our shareholders. We're proud of what we have accomplished together to start the year and are excited for what lies ahead. This positive start has enabled us to remain confident in our ability to meet our target of positive adjusted EBITDA in the second half of 2023, and to generate positive cash flow before the end of the year.
On that matter, and before I hand over the line, I would like to briefly address the current state of the capital markets and how we are actively managing our cash levels and liquidity. Without a doubt, the availability of funding for the broader cannabis industry has become increasingly difficult to source, as support from the capital markets has shifted dramatically over the past 12 months. To that end, we have been actively managing our balance sheet and adjusting our capital expenditures to ensure we can withstand the current market conditions. We remain actively engaged with our lending partners and hope to have an update on our funding plans in the near future. With that, I will turn over the call to Kavi, our new Chief Financial Officer, to review our financial results for the quarter.
Thank you, Ed. Good morning, everyone. As Ed mentioned, I'm gonna take a few minutes to go over our results for the 1st quarter of this year. As a reminder, before I get started, the results I will be going over today can be found in our quarterly financial statements and MD&A, and all are in USD. Additionally, the results of operations for the three months ended March 31st, 2023, include a full quarter of operations related to URBN Leaf, acquired March 1st, 2022, and Loudpack, acquired April 4th, 2022. As such, the results of operations are not necessarily comparable between these periods. During the 1st quarter of 2023, total revenue grew 43% to $24.7 million, compared with $17.3 million in the Q1 of 2022.
Retail revenue increased 24% to $14.4 million in Q1 2023, compared to $11.6 million in Q1 2022. Retail revenue primarily increased due to the retail dispensaries acquired in connection with the URBN Leaf acquisition, as well as the opening of Haight Ashbury dispensary and the Grossmont dispensary in April of 2022. Q1 2023 manufacturing revenue increased 134% to $9.4 million, compared to $4 million in Q1 2022. The manufacturing revenue increase was primarily attributable to the Loudpack acquisition in April of 2022. Wholesale revenue decreased almost $1 million, $800,000 in Q1 2023, compared to $1.6 million in Q1 2022.
The decrease in wholesale revenue is largely due to the company utilizing a greater percentage of flower produced for the company's branded products rather than selling bulk flower directly into the wholesale market. Consolidated gross profit before biological asset adjustments was $10.9 million, compared to $5.5 million in Q1 2022, resulting in a total gross margin of 44% for the first quarter of 2023, compared to 32% in the first quarter of 2022. Total gross margin increased primarily due to improvements in the wholesale operations. Retail gross margin improved to 59% for Q1 2023, compared to 56% in Q1 2022. Manufacturing gross margin was 21% for Q1 2023, compared to 34% in Q1 2022.
Some of this reduction is short-term and as a result of the changes we've made in the cultivation, trimming, and manufacturing businesses. These changes have also resulted in a positive fluctuation in the wholesale business, which wholesale gross margins was 54% for Q1 of 2023, compared to a negative gross margin of 145% in Q1 of 2022. In Q1 2023, approximately 91% of our flower and trim produced at Salinas Production Campus was used for company-owned products, compared to approximately 21% for Q1 of 2022. We expect to further improve gross profit by continuing to use more self-produced flower and trim in our branded products. Further margin improvements are expected from the close of cultivation at the Greenfield campus, which has been moved to the Salinas campus, which further reduced headcount, resulting in additional cost savings.
Total operating expenses for the first quarter of 2023 were approximately $16.8 million, compared to approximately $14 million in operating expenses in the Q1 of 2022. The increase in total operating expenses is primarily due to the increases in salaries and benefits from additional headcount assumed in connection with the URBN Leaf acquisition and the Loudpack acquisition, net of restructuring fees, as well as increases in banking and processing fees, as well as in office and general expenses due to the increases in retail locations. Operating loss for Q1 2023 was $5.8 million, as compared to operating loss of $7.6 million in Q1 of 2022.
Net loss attributable to StateHouse was $10.6 million in Q1 of 2023, compared to a net loss of $10.4 million in Q1 of 2022. adjusted EBITDA loss for Q1 2023 was $2.4 million, compared to a loss of $3.6 million in Q1 of 2022. Throughout the integration process, we have focused on optimizing operations, capitalizing on assets obtained through the acquisitions, and realizing synergies derived from increased scale. By effectively integrating our operations and strategically aligning our resources, we are well positioned to achieve our ultimate goal of sustained profitability and unlock full potential of our combined company. With that, I'll turn it back over to Ed for closing remarks.
Thank you, Kavi. Before opening the call to questions, I want to express our gratitude to our incredible team. Our early success this year serves as a testament to their hard work and dedication, and we're excited to continue exceeding customer expectations and establishing ourselves as a leader in the California cannabis space. We firmly believe that our vertically integrated scale, unwavering commitment to quality, and the remarkable work ethic demonstrated by our team these past months, past year, will drive our success in the market. With that, I'd like to now ask the Operator, Kevin, to open the call for questions.
Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered, or you wish to move yourself from the queue, please press star one one again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Frederico Gomes with ATB. Your line is open.
Hi, good morning. Thanks for taking my questions. My first question is on the market there in California in terms of wholesale. You mentioned that you're seeing improvements in wholesale prices, but, you know, where do you see that trending through the end of this year? Do you think they're gonna continue to trend higher? Maybe, you know, what sort of impact, you know, the wholesale prices increasing, what impact does that have on your retail sales and contract manufacturing as well? Thank you.
Sure. Thank you, Frederico. You know, just to be clear, when we talk wholesale prices, we're talking bulk prices of cannabis, you know, that you would buy by the pound in the market. It has strengthened considerably so far this year. Our view of this is, the outdoor market has been delayed just because of the rains that were well documented in California. You know, they not in the heavy deluge from the winter, but they continued well into the spring. We think this will impact the harvest yield come October. Our view is that both prices will likely hold their current levels, possibly strengthen a little bit more, and may well stay this way until summer of 2024.
As a vertically integrated manufacturer and retailer, we view this as a real win. This allows us to sell our excess manufactured or excess grown cannabis at good prices into the market. It also results in competitors who don't have their own grow, having to pay higher prices for their biomass. It's hard to find biomass of decent quality in California right now. Smalls are in short supply, premiums, extracted product like distillate, prices are way up. This puts a margin squeeze on a lot of our competitors, who are really unable to raise prices at retail because of the competition in the market and are having to pay more for their biomass. I like where we are in this market.
It really shows the value of being a vertically integrated company, and I'm excited to see how we can thrive over the next 12 to 24 months as a result of these strengths in both prices.
Thank you. That's, that's very helpful. On the retail side, I know, I know there's some seasonality there, but you also mentioned, I believe, in your financials, that you had reduced foot traffic in some of your stores. How, how should we think about your same-store sales at this point? Is it trending up or down? How, how much is it under your control to drive, you know, organic growth this year? Thank you.
Sure. Yeah, you know, traffic has been an issue. It's something that we've been focused on. It was one of the key drivers of revamping our loyalty program, and to have a fairly rich reward structure there, almost 10%, to make coming to an Urbn Leaf or Harborside store a real value proposition for customers. You know, the competition is tough in California, as I'm sure you know. The illicit market, you know, it isn't just a guy on a street corner. It's a beautiful store with counters and merchandise shelves and a POS system. They're selling at, you know, 30% below us because they're not collecting taxes, but that's the competitor that we have to be able to work against.
We think our loyalty program is really showing its effectiveness. We're emailing and texting customers. We're segmenting customers to drive traffic and to help them realize the rewards of being part of our program. We're doing a number of things. We've recently reduced some prices to ensure our competitiveness. You know, we mentioned in our announcement today about some new products, the Dime Bag Liquid Diamond Infused Pre-Rolls. We're really upping the cadence of product innovation, whether it's new flavors or new form factors. You know, the cannabis consumer is still finding their way, so they're very responsive to newness in the marketplace.
Over the summer and fall, you're gonna see a significant ramp-up in innovation and new product offerings from us, which we believe will play a factor in enhancing customer satisfaction, driving traffic, and ultimately driving sales at retail and through our wholesale business across California.
Thank you. My last question, just on your goal of getting to positive adjusted EBITDA and cash flow by the end of this year. Can you maybe just unpack that a little bit in terms of the drivers behind that? How much of it, you know, relies on sales growth? How much of it is on the margin side? In terms of the assets you are potentially looking to sell here, I understand that it probably be accretive to margins, how much of an impact on sales, you know, the sale of those assets could have? Thank you.
Sure. Actually, why don't I start, and Kavi, you feel free to add additional color here.
Absolutely.
The, you know, our financial plan, obviously, sales are a key driver of this, as well as our ability to maintain the margins that we've laid out in the financial plan, and of course, the expenses, which we continue to ratchet down. We remain confident in our ability to execute towards the plan. Certainly a lot of the headcount reductions, there's a delay as those costs and payments work their way through the system. We're realizing some of those in Q1, we'll realize more in Q2 and beyond.
On the asset sale side, a number of those assets, Frederico, are they were properties or licenses, so they were not active retail locations and thus did not drive sales. We do have a couple of our locations that we are looking at to assess what the opportunities are, but it's too early to report anything there. In answer to your question, if some of those asset dispositions come to fruition that do involve stores, the likely impact on sales would be modest.
Thank you. I'll pass it along.
Sure.
Ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. I'm not showing any further questions. I'd like to turn the call back over to Ed.
Okay. Well, with that, I'd like to thank everyone who joined us today and thank the team that provided support to help us put this together. We look forward to continuing this discussion at the end of the next quarter. Thank you.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.