Terra Tech Corp.
Q4 2020 Earnings Call Transcript

Published: 30 Mar 2021

[Operator:]

Hello, and thank you for standing by. Welcome to Terra Tech Corp.'s 2020 Year-End Financial Results Conference Call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. At this time, I would like to turn the conference over to Jason Assad, Investor Relations with Terra Tech. Please go ahead.

[Jason Assad:]

Thank you, operator. Good afternoon, and welcome to Terra Tech's 2020 year-end results conference call. With us today are Terra Tech's Chief Executive Officer, Frank Knuettel; and Chief Financial Officer, Jeff Batliner. Before I turn the call over to management, please remember that this conference call contains forward-looking statements as defined within Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements in terms such as anticipate, expect, intend, may, will, should or other comparable terms involve risks and uncertainties, because they relate to events and depend on circumstances that will occur in the future. These statements include statements regarding the intent, belief or current expectations of Terra Tech and members of it's management, as well as the assumptions on which the statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those described in Terra Tech's periodic reports filed with the SEC. And that actual results may differ materially from those contemplated by such forward-looking statements. Except as required by federal securities law, the company undertakes no obligation to update or revise forward-looking statements to reflect changed conditions. Finally, this conference call is being webcast. The webcast link is available in the Investor Relations section of our website at www.terratechcorp.com.

[Frank Knuettel:]

Thanks, Jason, and thank you everyone for joining us this afternoon to discuss Terra Tech's 2020 year-end operating results. More importantly, as this is the first time I am addressing you; thank you for giving me the opportunity to provide to you with an update on our strategic initiatives and operating plans as we further define the blueprint we set forth in our shareholder results in a moment. But in brief and to no surprise, 2020 was a challenging year for Terra Tech. We endured difficult capital markets, the extended closure of our two dispensaries in the East Bay following the summer riots, the failed one core transaction, and the sale of Edible Gardens; all of these factors, along with some unfortunate luck, and the aftermath of some bad historical decisions led to operational and financial under performance in both our company and our shareholders suffered. With that said, some of the insightful decisions made in the past have also set us up to relaunch Terra Tech. We're on the verge of being able to take advantage of some of those decisions in what we expect to be a major way the details regarding which I will share with you shortly. As I outlined in the shareholder letter in January, we have three primary initiatives for 2021; principally, stabilization of our balance sheet and operations, harvest the proceeds from prior asset sales and our investment in Hydrofarm, and relaunch Terra Tech on the foundation of our improved operations and expected cash position through the development of existing currently non-performing assets, and the acquisition of complementary well-run businesses. Regarding the first of these goals, stabilization of our operations and balance sheet; I'm quite pleased to report that we have made a number of important gains. First and foremost was the January amendment to our existing convertible debt allowing for an extension of the maturity date, as well as the showing up of our balance sheet with the infusion of additional capital to provide a bridge to our sale and investment proceeds. Additionally, Uri Kenig, our Chief Operating Officer, has led an overhaul of our operations, merchandising and promotional activities. As a result, we continue to see regular week over week sales gains at both dispensaries in East Bay. While they are not yet a pre-COVID, pre-riot levels; changes initiated by Uri and our dispensary management team have led to a positive trajectory with respect to revenue growth, inventory management and promotional programs with our key vendors. The last item has contributed to increased traffic and ticket sizes as we work to restore the dispensaries to their former levels.

[Jeff Batliner:]

Thanks, Frank and good afternoon, everyone. For the year ended December 31, 2020, we've generated revenues from continuing operations of approximately $14.3 million compared to approximately $16.5 million for the year ended December 31, 2019; this was a decrease of $2.2 million or 13.3%. The year-over-year decrease was driven by a decline of dispensary revenue of $6 million which was partially offset by cultivation and manufacturing revenue increases, which totaled $3.8 million. The dispensary revenue was negatively impacted by COVID-19 and civil unrest. COVID-19 reduced the customer traffic, enhanced our sales volume, while civil unrest resulted in six combined month of store closures for our two Bay area dispensaries. Our gross profit for the year ended December 31, 2020 was approximately $3.6 million compared to a gross profit of approximately $10.4 million for the year ended December 31, 2019, a decrease of $6.8 million. Our gross margin for the year ended December 31, 2020 was roughly 25.2% compared to approximately 62.8% for the year ended December 31, 2019. Our gross profit was impacted by less year-over-year dispensary revenue. Our lower dispensary revenue led to lower product purchasing volume and increased our unit costs. And we also experienced higher cost of sales in our cultivation and our production operations. Selling, general and administrative expenses for the 2020 fiscal year were approximately $24.6 million compared to approximately $36.7 million for the 2019 fiscal year, a decrease of $12.1 million or 32.9%. This was primarily due to an $8.7 million decrease in salaries, options expense, advertising expense and allowance for doubtful accounts. We also had reductions in insurance legal fees, accounting fees, consulting and other professional fees. In general, the decrease was due to costs driven out of the business as we narrowed our focus on to a few key assets. In other words, smaller operational footprint and less corporate spending in support of that. Other operating expenses for the year ended December 31, 2020 were approximately $19.9 million compared to other operating expenses of $8.6 million in the prior year, with an increase of $11.3 million. In 2020, activity was driven by goodwill impairment charges from $19.9 million. Other income for the 2020 fiscal year was approximately $27.1 million compared to other expenses of $9.2 million in the prior year, an increase of $36.3 million. The year-over-year improvement was due to two items; a 2020 income driven by the mark-to-market of the company's investment in Hydrofarm Holdings, which resulted in a $29 million unrealized gain, and a $6.4 million reduction in interest expense. In total, we incurred a net loss of $30.12 million or $0.16 per share for the 2020 fiscal year, compared to a net loss of $46.93 million or $0.44 per share for the 2019 fiscal year.

[Operator:]

Thank you. Our first question is from . Please proceed.

[Unidentified Analyst:]

Hey there; good call, guys. I had a question, Frank. Do you guys plan on uplisting to NASDAQ?

[Frank Knuettel:]

Yes. So, thanks for your question. At the moment we are unable to uplist to NASDAQ based on Federal Legislative rules with -- that NASDAQ has adopted or agreed with. But I also want you to know that it is a clear path for us and as soon as the window opens it is our plan to uplift as soon as it's available. So, we really think that while OTC has serviced the company well and been a pioneer in opening to lease touching companies, our aspirations for Terra Tech are larger and really drive us to a NASDAQ listing as soon as it becomes available.

[Unidentified Analyst:]

Thank you very much. And I actually had a second question, since they are voting today what impact is New York State's approving of recreational sales? How is that going to impact you all?

[Frank Knuettel:]

There is a couple of layers to that. The first layer is just at a high level whereby in New York, becoming the 17th adult-use state, it further expands the overall industry acceptance. It drives greater support at the federal level for legislative changes to adopt new banking regulations, regulatory perspectives, scheduling issues; all of which should facilitate the operations in the Cannabis sector. More directly, as you may know, we have a license pending for dispensary in New Jersey and we're reviewing the rules in New Jersey with respect to upgrading that from a medical to adult-use license, and will also be reviewing the rules for filing an application or applications in New York. My general perspective is that growth by organic growth is -- as you can get it, just depending on the licensing procedures, is a really concrete and steadfast way in which to grow the company. And obviously with the geographic size and population size of both, New York and New Jersey, we anticipate that those will be very healthy markets. So, we're reviewing the rules now and looking at our New Jersey license applications at jumping-off point to potentially entering the tri-state area.

[Operator:]

Our next question is from Joe Iowa . Please proceed.

[Unidentified Analyst:]

Yes. Could you guys give a little bit more color about your acquisition of Unrivaled?

[Frank Knuettel:]

Absolutely, thank you. So, technically, it is an acquisition from both a legal and accounting perspective, but we very much look at it as a merger. Unrivaled has a very solid team and they've grown quite extraordinarily since inception last couple of years, and we feel that the combination of the teams in the complementary businesses really are very much more of a merger then an outright acquisition and that we're going to be integrating members of their management team and our team to further expand the footprint upon which we can build Terra Tech. More specifically, the merger with Unrivaled brings immediate scale, they are considerably larger from a revenue perspective then is Terra Tech, and have strong statewide distribution in California and Oregon. They also bring with them great brands across various market segments, which is something that I think folds in really well with Terra Tech, and they also bring additional dispensary asset. So, it's an opportunity for us to use our platform, our cultivation base and to add their dispensaries to ours, and to feed the entire system with high quality brands that are being distributed in both, California and Oregon. And they also have in their Korova brand, a foothold in Arizona and Oklahoma. So, for us it's a pretty substantial update or increase in Terra Tech's platform, and I think is going to be strong addition and allow us to provide stronger stepping up for additional acquisitions going forward.

[Unidentified Analyst:]

Thank you.

[Operator:]

Our next question is from Cicilia Cordell , private investor. Please proceed.

[Unidentified Analyst:]

Yes, thank you for having me. I'm kind of excited about Terra Tech, I've kind of followed the company for several years and seen the translation of management and all the changes you've had to make with rapidly changing environment, COVID, civil unrest; I kind of do business on three or four continents and I'm kind of impressed with your management teams in place at this point. My question is, with all your acquisitions and all the plans you have for the future, what do you see the potential revenue growth for -- evolving of risk factors factored in for 2021?

[Frank Knuettel:]

So, as we indicated in our public filings; on a run rate basis we believe the combination with Unrivaled yield conservatively $70 million in annualized revenue. I want you to know that while that's a healthy step-up from our 2020 operating results, it is not yet anywhere close to a level at which we want to attain. So as I mentioned in my prepared remarks, we have active conversations with numerous other companies operating in California or adjacent states that while there's no certainty we'll be able to successfully close on any of those transactions, we do anticipate bringing additional ones on in the next 6, 12 and 18 months. So the short answer is, I see the combined two companies; Unrivaled and Terra Tech grossing greater than $70 million on an annualized basis but that we anticipate supplementing that and potentially even demonstrably supplementing that with additional acquisitions as we move forward. At this point because of the number of different conversations we have with a number of different companies in different segments of the market in the specific Southwest, I don't have any specific guidance other than the fact that we do anticipate demonstrably increasing the revenue base by way of both organic growth and by acquisition.

[Unidentified Analyst:]

Well, I think one of the biggest things that I'm also following is Washington, and then legalizing marijuana in all 48 contiguous United States, with the Hawaii and Alaska, which brings at a whole new level of the banking industry being only getting more involved and not having to do the cash thing and so on. So I'm kind of really excited about your guys progress and I'm a private investor, and I love what you guys are doing.

[Frank Knuettel:]

Appreciate it. Thank you.

[Unidentified Analyst:]

Thank you.

[Operator:]

Our next question is from Bobby Williams , Private Investor. Please proceed.

[Unidentified Analyst:]

Hello. Recently, within the last few weeks we saw the stock price run up into the 80's, now is pulled back into the 30's. Can you give some sort of insight on the cause of both?

[Frank Knuettel:]

So, I'm not -- I have no control of our stock price nor the markets in general, the only thing I'll point out is that following the inauguration of President Biden, and then the special election in Georgia that slipped the Senate from Republicans to Democrats, there is a certain level of exuberance in support of the space and potentially even too much so given just the time. So, the whole sector inflated in January and February, and selectively came back in many instances as well. So that's the only thing I can really point too. My goal here and my general perspective with respect to the company and it's stock prices, if you build a good company the stock price will follow. And our number one goal is to be focused on cannabis assets and build a good company, good -- build good operations, expand our revenue base, and do it in a fiscally prudent and responsible manner. And if we're successful in that goal then the stock price will follow, and any short-term gyrations are out of our control. And frankly, while we're certainly conscious of them, not ones we can or intend to impact through any sort of announcements; we just want to build a good company.

[Unidentified Analyst:]

I know it's a lot of work to build a company, so we appreciate all the effort you guys have put going forward. Look forward to the future. Thank you.

[Frank Knuettel:]

Thank you.

[Operator:]

Our next question is from Acai Victory , private investor. Please proceed.

[Unidentified Analyst:]

My question is in regards to the political landscape. Primarily, the Safe Banking Act, what your perspective is if that would pass as a standalone bill short-term or do you think it's going to be stalled until we have a more encompassing, either decriminalization or legalization bill passed in the Senate?

[Frank Knuettel:]

Thank you for your question. There is a lot of pieces and a lot of legislation in Congress right now for different aspects of the sector. I'm not a political prognosticator necessarily, but I would at the same time anticipate that the piece of legislation that is most at the top of the list for House Members and Senators is the Safe Banking Act or something akin to the Safe Banking Act because at the end of the day, whether Members of Congress like it or not, on the verge of having the 17th adult-use state, we have 3000-plus Med-use states, the industry is not going away. And I would say the biggest operating pain point or certainly one of the biggest operating pain points we have is access to good banking whether it's credit card management, cash receivables, cash management, it's a big struggle and it causes considerable operational inefficiencies, and at the same time there is risk associated with moving large amounts of cash around. So given all those factors and the fact that it doesn't necessarily address the legal stature of cannabis, I think it is the number one item with respect to the Cannabis sector in Congress, and from what I've heard from politicos is that there is an expectation that it will pass in some form or another in the very near future. With respect to other aspects of cannabis legislation, you run into more difficult scenarios with respect to descheduling because the tax impact of that with respect to 280E or with respect to the outright legalization and objections from -- especially senators in certain states. So lots of different aspects of Cannabis legislation, but with respect to the Safe Banking Act or something that can do it whether it's rolled into an omnibus bill or not , I do expect and do understand that that is actually likely to move forward in the very near future.

[Unidentified Analyst:]

That's very good news. Well, thank you very much.

[Frank Knuettel:]

You're welcome. Thank you.

[Operator:]

Our next question is from Daniel Johnson , private investor. Please proceed.

[Unidentified Analyst:]

Hello, a couple of questions. The first one being can you please outline your warrants in Hydrofarm as far as expiration date and the total quantity?

[Frank Knuettel:]

The warrants in Hydrofarm, we have approximately 294,000; we have a warrant to purchase approximately 294,000 shares, 295,000 shares of Hydrofarm, and we can check but I believe they are five-year warrants.

[Unidentified Analyst:]

Okay, thank you. And the price that you can execute at that I believe is $5?

[Frank Knuettel:]

It was reverse-adjusted immediately prior to their IPO.

[Jeff Batliner:]

So $16.80 something.

[Frank Knuettel:]

Yes, it's approximately $16.80 .

[Unidentified Analyst:]

Okay. With the -- got it. With the three point something, something split. Second question is with the expected mergers and acquisitions that are in the near to long-term future, how do you plan to finance those acquisitions? And mostly my biggest concern being shareholder for the past five to six years with finance those acquisition spend -- mostly my biggest concern being a shareholder for the past five to six years is that we…

[Frank Knuettel:]

It's going to depend -- it's going to be fact based depending on the particular acquisition in that -- with the Hydrofarm investment becoming available in about nine weeks combined with the asset receivable -- asset sale receivables we have. We will have a pretty strong balance sheet and a fair amount of net cash that we can use to either build out in development facilities or contribute to or actually provide a consideration for all the acquisition just depending on the size. I do want you to know that I certainly recognize -- I mean, I look at our cap table and I certainly recognize the dilution that we've all had in Terra Tech in the last couple of years, and one of the comments I made earlier about organic growth by way of new licenses; we're extremely conscious of the ups and downs that were experienced in the fluid capital markets in the '18 -- in the 2018 period followed by the dearth of capital in 2019. And the mad rush -- the mad land grab rush that was experienced. And Jeff and I and others in the management team all have financial backgrounds and it is absolutely our intent to focus on revenue and cash flow with respect to future acquisitions. So depending on -- regardless of how we pay for the acquisition themselves, it is our intent to be very fiscally prudent with respect to the valuations, revenue and cash flow, as compared to it going forward in those acquisitions. So one of the things that means is, we're a little bit more wary about new ranked states or acquiring -- new ranked states because new ranked states tend to have a premium on them. And generally speaking, that -- you have lower -- even a negative ROI if you're a new entrant in the new ranked state. So, regardless of how we finance it I do want you to know that we're very focused on and cognizant of the return on investment and the need to acquire assets at good valuations as opposed to just acquiring assets.

[Unidentified Analyst:]

I appreciate the thorough answer and the vote of confidence. Thank you.

[Frank Knuettel:]

Thank you.

[Operator:]

Our next question is from Neil Gallagher , private investor. Please proceed.

[Unidentified Analyst:]

Yes. Can you hear me?

[Frank Knuettel:]

Yes. Hello?

[Unidentified Analyst:]

Yes, I was just curious, what are your plans in the Nevada area with Bloom and so on and so forth? It seemed like things have kind of backed away from Nevada and I was just curious if you're going to expand in that area or continue to back away?

[Frank Knuettel:]

So we're not going to continue to back away. Our overall thesis is to build a really major stronghold in California and contiguous states, and those contiguous states right now are Nevada and Oregon. As I mentioned, Arizona would certainly be an option although as a new ranked state we're little vary of the valuations. So if they -- if an opportunity arises in Arizona where we feel that the financial metrics and the valuation match and are in good order, then we'll move in Arizona. But for the immediate future we're focused on California, Nevada, and Oregon. In Nevada we have 50% of operation that provides or manages both cultivation, manufacturing and processing facilities; and it is our intent to build on that or use that as a stepping stone to expand in Nevada, whether by virtue of adding dispensaries on top of it or rolling out some of Unrivaled brands on top of our cultivation and processing facilities in Nevada, into that state. So, clearly not backing away and looking for good entry points to use our joint venture as a stepping stone to expand.

[Unidentified Analyst:]

Thank you very much for that information. I appreciate it.

[Frank Knuettel:]

You're welcome.

[Operator:]

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Frank for closing comments.

[Frank Knuettel:]

Thank you very much. On behalf of Terra Tech, our management and our employees, I want to thank all of you for the support, and frankly, extend to you my appreciation and understanding that it's been bit of a roller coaster from time to time but we really do have a good focus now and anticipate building on the platform we have in a fiscally responsible and prudent manner. And it is our absolute intent to provide the transparency, we're available to you all, and I just want to thank you everything for all your support, and look forward to providing good returns and good growth for you all.

[Operator:]

Thank you. This does conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.