MariMed Inc.
Q1 2021 Earnings Call Transcript

Published: 18 May 2021

[Operator:]

Good morning and welcome to the MariMed, Inc. First Quarter 2021 Earnings Call. With us on today's call are Bob Fireman, CEO of MariMed; and Jon Levine, MariMed's Chief Financial Officer. Today management will review the highlights and financial results for the first quarter and will business and operational update. Following management's prepared remarks, there will be a Q&A session. During the Q&A portion of today's call, we ask that you kindly limit yourself to one question and one follow-up. A reminder that today's conference is being recorded. I would also like to remind everyone that during today's call, management will discuss our business outlook and make forward-looking statements. Actual events or results could differs materially due to a number of risks and uncertainties including those mentioned in the 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.

[Bob Fireman:]

Thank you, operator, and thank you to everyone joining us on the call today. I'd like to start this morning call with selected highlights of our Q1 2021 performance, and then provide an update on the continued execution of our previously announced growth strategy and recent company develops. After that, I'll pass the line to John to review our financial results in more detail. First off, I am thrilled to report that we achieved our highest ever core cannabis revenue and profitability in Q1 and are on pace with the 2021 guidance we provided. Our core cannabis business revenue increased 230% to $24.6 million for Q1 compared to $7.5 million for the same period in 2020. We achieved EBITDA of $7.6 million for the quarter, which represents the 764% increase over $883,000 of EBITDA in Q1 20. The core drivers contributing to the strong financial results in Q1 2021 included. First the consolidation of the Massachusetts and Illinois cannabis business units, which allows us to report in our public filings, revenue and earnings from these top industries states with which both adult use and medical cannabis programs. Second, increasing recreational cannabis sales in all three of our Illinois recreational dispensaries, as well as our recreational dispensary in Massachusetts in Q1 2020. The third Illinois dispensary in Mount Vernon opened in late Q3 2020. In the Massachusetts dispensary in Middleborough obtain recreational approval also at the end of Q3 2020. Folks have been expanding their customer bases since then. We recently opened a fourth dispensary in Illinois in metropolis, the home of the Superman Museum, and a region of tourism on the Ohio River at the border of Illinois and Kentucky. While the store opened after the first quarter concluded, we expect this dispensary to be a major contributor to our future financial performance. The third driver in Q1 2021 was the ramp up to almost full capacity of our 70,000 square foot, New Bedford Massachusetts cultivation and manufacturing facility, which has increased production and in turn revenue in the robust wholesale Massachusetts market. Our fourth drivers is the success of our company's award winning cannabis flower, product mix and favorable customer experience once you have all contributed to the increase patient and customer counts that are owned and managed dispensers. As previously reported, MariMed has been working diligently on his core cannabis business and the valuable licenses we developed in multiple states. We implemented a consolidation strategy to roll these business units and established the company as a vertically integrated seed to sale profitable MSO. The consolidations of Massachusetts in Illinois were important first steps in the execution of that strategy that has contributed significantly to our strong financial performance in Q1 2021. We continue to work to consolidate our managed clients businesses that our team has organically developed in Maryland, Delaware, and Nevada are all subject to state approvals. We will report on this activity when appropriate. In the interim under our management, these businesses continue to have sustained revenue growth, which in turn contributes to MariMed revenue for management fees, percentage rents, supplies and brand licensing states.

[Jon Levine:]

Thank you, Bob and morning, everyone. Today I'll provide a brief overview of our first quarter 2021 financial results. Like Bob mentioned in Q1 2021, our core cannabis revenues increased 230% to $24.6 million compared to $7.5 million for the same period in 2020. Gross profit on core cannabis revenues increased by 171%. The $13.2 million for the Q1 2021 compared to $4.9 million for the same period in 2012. There were a number of factors that contributed to the improvement in revenues and earnings in Q1, including the continued ramp up of the New Bedford mass cultivation manufacturing facility resulted in an increase in wholesale sales, increased output and sales of the branded products in Massachusetts resulting from the introduction of new automated production equipment in New Bedford. Increased recreational sales that are dispensary in Middleborough mass which started selling recreational in September of 2020. Substantial same store sales growth from the company's Anna, Illinois in Harrisburg Illinois dispensary as the locations continue to attract increased numbers of recreational customers visit during Q1 2021 increased recreational sales from the company's dispensary in Mount Vernon, Illinois, which opened in September 2020 and continues to expand its customer base, an increase of 108% in the management fee revenue in Q1 2021 versus Q1 2020 from the continued success of the company's managed cannabis license clients in Delaware and Maryland. Operating expenses for the first quarter of 2021 were $6.1 million compared with $3.8 million in the same quarter of 2020 contributed to the year-on-year increase with the growth of dispensary operations to support additional revenue. As a result of these factors, EBITDA for the first quarter 2021 grew to $7.6 million or 31% of revenue compared with an EBIT of 883,000 or 12% of revenue for the same period in 2020.

[Operator:]

This question comes from Glenn Mattson at Ladenburg Thalmann. Please go ahead.

[Glenn Mattson:]

Hi, nice speaking with you, and congrats on the results in the quarter. So curious about the, just the outlook as far as your consolidation strategy goes. You know, whether or not you're fully funded to complete that now, once the second tranche of this capital raise comes through, or what kind of headway you have there? And what, if there's extra room above that, where else would be your priority for that capital?

[Bob Fireman:]

Thank you, Glen. And thank you for calling and you're interest in MariMed. We had been financing the balance of the $23 million in reserves, is designated for further consolidation of the four states we've targeted and built and manage or looking elsewhere. So we're fully funded. The other thing is, we have a, now want a tremendous positive cash flow and accumulating cash, month after month. So I think we're fully funded for the next two consolidations. And we're in discussions to have those some of those are subject to change of war is that two of those dates are medical only, not for profit. But we're working on that and the others, and we have the capital to close as soon as possible. So we're very excited. And once we do that, when we can report those the cannabis revenues from those states, obviously, that will go into our public reporting, financial reports. And we'll probably at that point, improve our guidance to the public.

[Glenn Mattson:]

Right. Great. And then margins were quite good in the quarters as you kind of reference there. So can you just give a sense? Maybe you broke it out, and I missed it. But what was the breakdown between just between the retail and the wholesale? And, you know, which side of that equation are you leaning more towards as you push forward in the future, and what the mix would look like and, you know say save some time here that you're comfortable guiding to 12 months or 24 months or something like that?

[Bob Fireman:]

Jon, you want to answer that?

[Jon Levine:]

Yes, I will, just about to answer it Bob. We did not break out when the difference between retail versus wholesale, our business concentration levels are increasing at the retail with the additional retail stores, the wholesale business in Massachusetts, as we expand into other markets with wholesale, then that business will also increase. But right now we're concentrating on the increase of the retail sales, I can give you more detailed breakdown, if you'd like at a later time.

[Bob Fireman:]

And I would add to that, Glenn that, obviously having a vertically integrated business in the states, some people feel as a more sustainable model than just retail alone. But the revenue from retail has been good. And it's my friends in Washington ever passed this banking accident, takeaway to add, it could be even better. We also look for long term growth in the licensing of our brands, to different partners in different states where we don't operate. So we think those three revenue streams are growth in the marketplace, then the law will determine which one we focus on.

[Glenn Mattson:]

Great, that's very helpful. Thanks. I look forward to following up.

[Operator:]

Next question comes from Christopher Santos at Beacon Securities. Please go ahead.

[Christopher Santos:]

Hi, guys firstly, thanks for taking my question and congratulations on executing in the quarter. I've just got a question about Illinois. So with respect to Illinois, can you talk about the wholesale supply environment you've faced for stocking your dispensary shelves? And with the capacity brought on by the other? Has consistency and variety of products supply improved? And are there any areas of shortage?

[Jon Levine:]

I'll take this one, Bob, if you don't mind. Thank you for the question, Chris. In Illinois, I know that the market was very tight with suppliers being able to supply products to the dispensary. We have been very fortunate that the relationships that we have in Illinois that the suppliers have been very dedicated to making sure we have a good mixture and supply level at each one of our dispensary. We just have the grand opening at our Metropolis location. And we were very well stocked there with quite a selection of different products. I do feel that with the expansion of each of the suppliers having built out more grow in production space, that we're seeing some improvement across the board. But we have been very fortunate with our relationships to have a consistency of supply and options of what the customers have.

[Christopher Santos:]

Perfect. Thank you. And with respect to the license you've applied for. Do you have any color on when the state may issue those given the delays?

[Bob Fireman:]

You know, with every state, Chris, it's how you up and wait. Okay, so we heard a few weeks ago was coming up quickly. But we haven't seen anything in the last few weeks.

[Christopher Santos:]

Appreciate it. Thanks, guys. I'll jump back in the queue.

[Bob Fireman:]

Thank you so much. And thanks to all the friends at Beacon.

[Operator:]

Thank you. Next question comes from Scott Stagg of Benchmark. Please go ahead.

[Unidentified Analyst:]

Hey, guys, very nice quarter. Nice to speak to you again. I had a question regarding Massachusetts wholesale. You do break that out, provide some specificity as it relates to wholesale. You mentioned $5.4 million of revenue from the New Bedford facility. And I'm just trying to back into the number of wholesale pounds you sold for the quarter, it looks like in very general terms at $4,000 a pound that's about £450. I believe for each month that you guys have mentioned that you can do £1000 a month. So I'm wondering what you expect to ramp up to be in Massachusetts on the wholesale side?

[Bob Fireman:]

Thank you, Scott, for the question. It's good to speak to you again, the wholesale market in Massachusetts was slowed a lot by the testing process, the labs were very far behind. Since they've added a few more labs near the end of the first quarter, we have been getting test results much quicker, which will help turn the 1000 pounds a month into revenue, you will see an increase in the revenue there monthly as we build up. The products also have to be tested. And again, we're turning the oils around and then we still have to get the test results, which was slow for a period of time. But with the increased testing sites in Massachusetts, we're having a much faster turnaround. And we hope to be able to show those increases in Q2 and beyond.

[Unidentified Analyst:]

Okay, fantastic. And then the last question I had relates to litigation in Maryland. And I'm wondering what the status is there as relates to either the acquisition or I say from the increase in management revenues that you seem to be including Maryland there. So just wanted to get an update with that as well?

[Bob Fireman:]

So, Scott, the litigation continues, notwithstanding we think it's in everyone's interest to settle based on a eight day hearing on a preliminary injunction hearing in 2020, the court issued an order providing a validating MariMed management agreement, or at least in our licensing agreement, in essence, put us in operational and financial control in January of this year in the first quarter. So we will begin you'll seeing revenue from management fees, and rent and licensing fees that are actually being paid. The matter is pending trial sometime in March of 2022 and then.

[Jon Levine:]

We'll update through our 10-Q of where we are with the trial.

[Unidentified Analyst:]

Okay. All right. Fantastic. Thank you and congrats again on a very nice quarter.

[Jon Levine:]

Thanks for reaching out, Scott.

[Operator:]

Thank you. Next question is a follow up from Christopher Santos at Beacon Securities. Please go ahead.

[Christopher Santos:]

Hey, guys, thanks again. Just a question about Massachusetts, you guys mentioned two licenses and various stages of development. Do you have any kind of timeline on opening those dispensaries or anything like that, that you could provide to us?

[Bob Fireman:]

John, you want to answer it?

[Jon Levine:]

So we're basically in negotiations on a license that we are hoping to get transferred over in the next six or less months and then be able to have that open and operating hopefully before the end of the year. The other license, we're still working on the host community agreements and hope to have that wrapped up, but can't put a timeline on the state or the town's.

[Christopher Santos:]

Perfect, thank you. It's great and then just a follow-up on Massachusetts. So you mentioned the cultivation facility is performing extremely well. Congratulations. Do you guys have any, can you envision any need to expand that facility in the future? Is there any visibility on that?

[Jon Levine:]

Yes, we are. The company owns 137,000 foot building in New Bedford. The dispensary is in 70,000 or about half, we've asked the tenant is leaving. And as soon as he leaves over the course of the next year, we're going to expand into the additional, approximately 70,000 seats, we're also looking for an additional. The building was allowed for an additional 100,000 square feet. So we're looking to expand our labs, our kitchen as fast as we can. And the good news in Massachusetts is that our flowers, as well as the top seller and our branded products and top sellers. If we could get through some of the lab testing, we could expand our revenue in both categories as we're in great demand. The other thing is, now with this over 80 dispensaries opening and the program is expanding, the opportunity for additional revenue is substantial. And we want to make sure we have enough flowers and oils and concentrates to supply to that marketplace. So Massachusetts is going very well.

[Christopher Santos:]

Perfect. That's exactly what I wanted to hear. I appreciate it, guys. Thank you very much. Thank you.

[Jon Levine:]

Thank you.

[Operator:]

Thank you. There are no further questions. I will now turn the call back over to Bob Fireman for closing comments.

[Bob Fireman:]

I am pleased to have delivered significant top line growth together with improved earnings to our shareholders in Q1. Our strategic growth plan is working with assets and brands led by an experienced management team. I've never been more confident in our ability to become a leading MSO with 2021 shaping up to be another strong year for MariMed. I'd like to thank everyone again for joining us on today's call, and for your continued interest in MariMed. I'd also like to take a brief moment to thanks the MariMed team for their continued hard work and dedication. We look forward to updating you on our continued progress. Thank you all and have a great day.

[Operator:]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines. Enjoy the rest of your day.