MariMed Inc.
Q3 2021 Earnings Call Transcript

Published: 16 Nov 2021

[Operator:]

Good morning, everyone, and welcome to the MariMed Third Quarter Conference Call. I would now like to turn the conference over to Steve West, Vice President of Investor Relations. Please go ahead, Mr. West.

[Steve West:]

Good morning, everyone, and welcome to the MariMed Third Quarter Conference Call. Joining me today are Bob Fireman, our Chief Executive Officer; and Jon Levine, our Chief Financial Officer. This call is being recorded and will be archived on our Investor Relations website at ir.marimedinc.com. Today's call contains forward-looking statements subject to various risks, uncertainties and other factors that could cause actual results to differ materially from those forward-looking statements. Any such information and statements should be taken in conjunction with cautionary statements in our press releases and risk factor discussions in our public filings found on EDGAR as well as our investor website. Any forward-looking statements reflect management's expectations as of today's date. And we assume no obligation to update them other than as may be required by applicable securities laws. Now for your future scheduling purposes, our fourth quarter 2021 earnings release is tentatively scheduled to be issued after the market close on March 31, 2022, and subsequent analyst call will be held the morning of April 1, 2022. I will now turn the call over to Bob.

[Robert Fireman:]

Thank you, Steve, and good morning, everyone. I am delighted to report on another quarter of positive financial results at MariMed. We are extremely pleased with our continued improving financial performance during the third quarter despite an industry-wide slowdown. We continue to report some of the strongest revenue and EBITDA growth in the industry. This is a result of our financial discipline and our operational excellence at cultivation, production and retail. With an already strong balance sheet, another quarter of robust operating cash flow and a significantly increased cash position, we are poised for continued success. Our strategic growth plan is working. And I am confident we will continue to generate long-term value for our shareholders. Our third quarter revenue was $33.2 million, up 147% year-over-year. And our adjusted EBITDA was $12.9 million, a 213% increase year-over-year. Revenue from company-owned retail dispensary operations in Illinois and Massachusetts grew 207% year-over-year. In Massachusetts, our retail sales increased 584% year-over-year, driven by the addition of adult-use sales in our Panacea Wellness dispensary. In Illinois, our Thrive dispensary sales increased 169% year-over-year, which was driven by higher traffic count. Our Metropolis store continues to exceed our expectations and has become a strong destination store for both Illinois residents and out-of-state customers from Indiana, Kentucky and Missouri. Revenue from the company wholesale sales of cannabis flower concentrates and infused products grew 91% year-over-year. This was a result of both the increased production from MariMed's manufacturing facility and the increased number of licensed dispensaries in Massachusetts, which now has 176 stores and open dispensaries. In addition to our distribution gains, we added new SKUs to our product lines, an automated equipment that significantly increases our capacity and efficiency. On the branding front, our award-winning Nature's Heritage flower and Betty's Eddies edibles are among the top-selling brands in every state in which they are offered. We attribute this to our commitment to manufacturing quality products that meet the specific consumer needs. In fact, during the quarter, these two brands won even more awards and accolades. Nature's Heritage flower won a second place in the Massachusetts Cultivators Cup and third place for the best flower by High Times. Betty's Eddies was named the #1 hottest ingestible brand in Massachusetts by Respect My Region, a top cannabis culture platform. The accolades keep coming. Just yesterday, LeafLink announced Nature's Heritage Colorado Chem Wax as one of the fastest-selling concentrate in the country and Bedtime Betty's, among the best medical products in the U.S. Our brands have also achieved several sales milestones. In Massachusetts, Betty's Bedtime has sold over 1.8 million chews year-to-date, making it the #1 edible SKU by volume. Our infused chocolate chip cookie is the #1-ranked product within the culinary infused foods category in Massachusetts. I will now turn the call over to Jon to further highlight our third quarter financials.

[Jon Levine:]

Thank you, Bob, and good morning, everyone. Last night, we reported third quarter 2021 results. Our reported revenue was $33.2 million, which was an increase of 147% compared to the third quarter of 2020. This is primarily driven by 207% growth in our retail business, which reflected overall transaction growth of 285% on the year-over-year basis. This transaction growth was primarily the result of the introduction of adult-use cannabis programs in Illinois and Massachusetts. Our total revenue growth was also driven by a 91% year-over-year increase in our wholesale business. We also achieved 33% year-over-year increase in other revenue, mainly from licensing fees, managed services and our real estate income. Gross profit was $18.2 million, which increased 109% compared to the third quarter of 2020. G&A was $9.5 million, a 223% increase from the third quarter of 2020. This was a result of noncash increases to the stock-based compensation of $5.1 million. Including -- excluding this noncash expense, our G&A would have grown significantly slower than our revenue. Net income after deducting net income attributable to noncontrolling interest was $2 million, a 20% increase from the third quarter of 2020. EBITDA was $7.1 million, a 71% increase compared to the third quarter of 2020. Our adjusted EBITDA was $12.9 million, a 213% increase compared to the third quarter of 2020. I am happy to report the continued strengthening of our balance sheet. We ended the quarter with $25.6 million in cash on hand compared to our year-end cash balance of $3 million. This was a 47% increase versus our second quarter ending cash balance of $17.4 million. Our cash position continues to strengthen for the company. In fact, year-to-date, we have generated $28.2 million in operating cash flow. At the end of the third quarter, MariMed reported $27.3 million in net working capital, a significant improvement from our deficit of $2.2 million at the end of 2020. Before turning the call over to Bob to conclude our remarks. I'd like to discuss our financial guidance. We are maintaining our full year 2021 guidance of $118 million in revenue and $42 million in adjusted EBITDA. With our continued growth, we are comfortable that we will meet or exceed our guidance for the year. That concludes my prepared remarks. Now I'll turn the call back over to Bob. Bob?

[Robert Fireman:]

Thank you, Jon. In the span of just a few years, MariMed has delivered some of the strongest financial metrics in the industry. Our disciplined approach to spending and our deep operational experience has resulted in a consistent track record of delivering revenues and profits for our shareholders. We've also worked very hard to achieve a clean balance sheet that has put us in a great position to support the strategic growth plan that I've shared in the past, which is focused on consolidation and expansion. We have found our rhythm at MariMed, and we're looking forward to a very bright future for the company. But there is still much to do. Our experienced leadership team has been together for nearly a decade. We have strengthened our senior management team and bench over the past few months and we continue to round out our C-suite. In terms of our assets, we continue to work towards consolidating our managed businesses and grow our footprint deeper in states where we operate. In Massachusetts, we plan to open two new dispensaries and expand our production capabilities. In Illinois, we intend to become fully vertical by adding additional licenses. We intend to apply for new licenses in states with the application processes that are open and to acquire strategically aligned SSOs and single-state operators, who share our commitment to quality. I have said many times before, the ultimate winners in cannabis will be the companies that focus on branding and distribution. MariMed has created a portfolio of proprietary, award-winning brands and products. These products continue to be the top sellers in all the markets in which they are available. We intend to expand the depth of our product lines that meet the needs and improve the health and wellness of our patients and consumers. We intend to introduce these brands and products into additional legal cannabis states through licensing to qualified partners or by acquiring licenses to produce and distribute ourselves. I'm excited about several new and innovative products you'll be hearing about over the coming months

[Operator:]

. Your first question comes from Kyle Bauser from Colliers Securities.

[Kyle Bauser:]

Congrats on the phenomenal results here. Maybe first off, as you continue to execute on your strategic growth plan and with the growing cash balance, have any of the four kind of goals become more or less important to you? How are you prioritizing these? I guess, I'm thinking in terms of new license applications and M&A. Has this bucket become more front and center? Or is completing the consolidation of your -- of the operations that you currently manage still kind of front and center?

[Robert Fireman:]

Thank you, Kyle. They're, all four, very important. I mean, obviously, we attack them all every day. We work hard to finish the consolidation of our managed business units. I mean, the focus seems more today on potential M&A with new applications being opened in states like Ohio, New Jersey and New York. We're focused on new applications. And we are in constant talks with SSOs, single operators, in other states that we're not, that understand the competition is coming. They want to be part of our umbrella of best brands, best practices and capital to expand. So I think strategically, as I said, our long-term plan is in branding and distribution. So we continue to upgrade our marketing department and look forward to taking our brands into multiple states.

[Kyle Bauser:]

Got it. That makes sense. And regarding the maintained sales guidance of $118 million for the year, I think it implies about $28 million for Q4, about 36% growth, so still nice growth. And it sounds like you feel comfortable on meeting or exceeding that. Can you talk maybe a little bit more about what you're seeing in the industry and kind of reasons for the slowdown and kind of expectations going forward?

[Jon Levine:]

Yes, Kyle, thank you for the question. This is Jon Levine. Yes, we only need $28 million for the -- to achieve our $118 million guidance. But as you've likely heard from other MSOs, the industry is still going through a slowdown of consumers as they don't have the government stimulus and unemployment support as they did last year. And the slowing of the industry, when so many MSOs lowered their guidance, we are comfortable that we're still going to meet and exceed our guidance.

[Kyle Bauser:]

Well, that's great, appreciate that. And then just lastly, if I may, maybe perhaps most importantly, can you talk a little bit more about how your plans have evolved around rolling out new products and in particular, your ice cream?

[Robert Fireman:]

Thank you, Kyle. We -- this is Bob. Yes, I mean, we believe that brands in distribution is the ultimate winners as the company gets more mainstream and as we get closer to legalization. So we continue to go deeper into the SKUs and brands that we have with Betty's, K Fusion and bringing new brands and new innovative products to the industry. But we're trying to increase market share, go deeper with more SKUs. And all our products are really focused on meeting the needs of the patients and giving them the best opportunity to get the relief or whatever they're looking for in cannabis. So we're expanding our marketing branding division. We're looking at giving more licensing in other states. And we're looking at possibly winning production and distribution licenses to do it ourselves.

[Operator:]

. Your next question comes from Aaron Grey from Alliance Global Partners.

[Aaron Grey:]

So first question for me, just want to piggyback off the last one in terms of organic licenses. So just want to clarify, you mentioned New Jersey and New York. If you're not grandfathered in there on the medical side, then vertical integration doesn't seem that it will be allowed. So just wanted to make sure I'm correct in terms of which vertical you'd be looking to apply for those licenses. I imagine it would be more wholesale, cultivation versus retail. But just if you could clarify that, that would be helpful.

[Robert Fireman:]

Okay. Thank you, Aaron. Aaron, as you know, every state is different. The rules and regs are changed. Obviously, there's going to be -- full verticals won't be available in New Jersey. But I think our application team is looking at that. We're also looking at possible M&A for some of the people that have verticals. Our goal is to get our brands in distribution in a long-term strategy. But as you know, the revenue from retail dispensaries is driving revenue at all the MSOs. So we're looking for new dispensaries. But ultimately, we're looking to be at least in producing, distributing and retail in all of these states.

[Aaron Grey:]

All right. Great. And then more specifically on Illinois, where you talked about potential M&A targets on the retail side. So first off, can you just talk about maybe some of the pricing out there? It seems there's a good amount of the large MSOs, who have more of a full, maxed-out 10 on the retail side. So just wanted to get a sense in terms of what you're seeing on pricing. And then number two, just what you might have available in terms of potentially partnering with social equity license applicants as those additional licenses come online down the state.

[Robert Fireman:]

Yes, we are -- well, since the initial awards were to grounds of lottery ball winners in Illinois, we're in communication with several kinds of winners, social equity people that are looking for partners that can provide the capital and the wherewithal to take their dreams and turn them into cannabis businesses. And that's a point of ours to mentor and bring more inclusion into our industry. But some of the attributes of the program have ran into questions. There's a lot of MSOs looking to acquire these licenses as we are. As far as the pricing, it's amazing how somehow this industry, people are trying to sell licenses for millions of dollars that don't have a location, don't have local authority and think that they're providing the opportunity. So we've seen prices grow from $1 million to $2 million, $3 million and in some of the regions that are specific, $4 million, $5 million, $6 million. But there's a difference between buying and asking in conversation and actually what's closing. The ultimate value of these licenses are what people can do with them. So whether it's us or someone else, someone needs to know that they can take these licenses and turn them into real businesses. So at MariMed, we believe Illinois is a very robust state. Our 4 dispensaries under our Thrive label are killing it for us. So we can own up to 10. So we're in the market to own another up to 6 more dispensaries. And we want to do the craft licenses, we can own up to 3 of those. And we want to give us the opportunity to go vertical to provide our own oils and products, so we can distribute to our 10 stores and put our best brands, like Betty's and others, into the wholesale market in Illinois.

[Operator:]

. And there are no further questions at this time. You may please proceed.

[Robert Fireman:]

Do you want to close?

[Jon Levine:]

Yes.

[Operator:]

Ladies and gentlemen, this concludes your conference call for today. We thank you very much for participating, and ask that you please disconnect your lines.