MariMed Inc. (PNK:MRMD) Q3 2023 Earnings Call Transcript

MariMed Inc. (PNK:MRMD) Q3 2023 Earnings Call Transcript November 9, 2023

Operator: Good morning. My name is Jen, and I will be your conference operator today. At this time, I'd like to welcome everyone to the MariMed Inc. third-quarter 2023 financial results conference call. [Operator Instructions]. I will now turn the line over to Mr. Steve West, Vice President of Investor Relations, to begin the conference.

Steve West: Good morning, everyone, and welcome to MariMeds third-quarter 2023 earnings call. Joining me today are Jon Levine, our Chief Executive Officer; Tim Shaw, our Chief Operating Officer; and Rene Gulliver, our Head of Business Development. Most of you know, Rene having met him on various calls and conference meetings. This call will be archived on our Investor Relations website and contains forward-looking statements. Actual events or results may differ materially from these forward-looking statements and are subject to various risks and uncertainties. A discussion of some of these risks is contained in the Risk Factors' section of our 10-K and our earnings release, which are available on our website. Any forward-looking statements reflect management's expectations as of today and we assume no obligation to update them unless required by law.

A lab technician meticulously measuring and mixing ingredients to create a cannabis-infused edible.

Additionally, we will refer to certain non-GAAP financial measures, which are reconciled in our earnings release and our supplemental slides located on the Investors section of our website. Finally, our fourth-quarter 2023 earnings release is tentatively scheduled to be issued after the markets close on March 6, 2024, and our analyst call will be held the morning of March 7, 2024, at 8 AM. I will now turn the call over to Jon.

Jon Levine: Thank you, Steve, and good morning, everyone. I'm pleased to report that MariMed had another strong quarter of revenue growth, which was the result of the strong growth in our core wholesale businesses in Maryland and Massachusetts, as well as our new dispensaries ramping towards maturity. We reported positive adjusted EBITDA for the 15th consecutive quarter, and we remain on track to generate positive operating cash flow for the fourth consecutive year. Let me quickly highlight some of the key achievements since our last earnings call. First, we began adult sales in Maryland on July 1. As expected, sales have been very strong. Our Annapolis dispensary sales are trending more than 2 times what they were before adult use.

In fact, our Annapolis dispensary is on a trajectory to be our second largest revenue-producing dispensary behind our Metropolis, Illinois location. While wholesale results continue to accelerate, sales are stabilizing due to limited flower supply. Which we are aggressively addressing through the expansion of the cultivation facility in Hagerstown Maryland. I could not be more excited for Maryland's long-term potential. Subsequent to the end of the third quarter, we opened our fifth dispensary in Illinois. Our new Thrive Dispensary in Casey is our 12th dispensary across five states that we own or manage. And we still have room to double our dispensary counts in Illinois, which we are actively seeking to do so. Additionally, I'm thrilled to announce that we received the certificate of occupancy for our new processing facility in Mount Vernon, Illinois.

We are awaiting approval from the Department of Agriculture to begin manufacturing cannabis products, which we expect receipt of shortly. For more than three years, I have wanted to say to the residents of Illinois, Betty's is finally back. We're quickly ramping operations, and our sales team has already secured early sales commitments from the largest retailers in the state. We expect our products to begin selling through our retail and wholesale chains in time for the holiday seasons. With that, I turn the call over to Tim for his operational update.

Tim Shaw: Thank you, Jon, and good morning, everyone. Let me start my operational review with our retail business. We continue to post strong retail growth throughout most of our footprint during the third quarter. Retail revenue increased 2% year over year and decreased about 1% sequentially. While our retail traffic was up 18%, driven by new store growth, our average check was down 13%. All of this is consistent with the industry according to BDSA data. Clearly, economic pressures continue to impact the consumer. Despite those pressures, Massachusetts grew 9% sequentially and 42% year over year, driven primarily by our new dispensary openings. Maryland grew 88% sequentially as our Annapolis dispensary, which opened in the fourth quarter of last year, continued its strong ramp and experienced a significant boost from the implementation of adult-use sales.

In Illinois, sales declined due to increased retail competition as well as the impact of adult-use sales in Missouri. These declines will be partially offset with the recent opening of our Casey dispensary. Additionally, we are introducing more value products and new product bundles at retail to regain lost traffic and boost average check. We are also redirecting some marketing dollars from national initiatives to local. These same initiatives have helped us regain share in Massachusetts when we faced similar competitive pressures. Finally, introducing Betty's Eddies in our dispensaries and tactically wholesaling, our branded products, primarily in areas where we do not operate retail locations, will help drive traffic to our dispensaries. Overall, we are pleased with our retail business.

We continue reporting increased revenue in Massachusetts, Maryland, and Ohio as our new dispensaries ramp to maturity. Moving to wholesale, we reported $13.6 million in wholesale revenue, which increased 51% year over year and 24% sequentially. In fact, this was the seventh consecutive quarter of sequentially higher revenue in the fifth consecutive quarter of record sales within our wholesale business. This growth was driven primarily by adult-use in Maryland, but make no mistake, Massachusetts is also growing very nicely. We could not be more pleased with our overall momentum; we are experiencing both our Maryland and Massachusetts wholesale business. On the marketing front, we launched our seasonal Beach Time Betty's in July. And I'm proud to say in October, we partnered with Keep A Breast Foundation, which advances breast cancer awareness education and supports the millions of people affected by the disease.

The limited-edition pink packaging of our Ache Away Eddies and the Keep A Breast partnership were a huge hits with our customers. Our world-class R&D team has been working on new and improved versions of our Vibations drink mix, K Fusion chewable tablets, our in-house gummies, and other new products. These improvements are focused on efficacy, onset time, and the expansion of our variety of need states and taste profiles. These efforts represent a demonstration of the team's dedication for restless dissatisfaction with the status quo. Over the next six months, we plan to launch several new products to include, we will extend the Betty's Eddies with limited time apple pie and champagne flavors this December. We're launching Double Duos under Nature's Heritage, which offers two distinct strains in one convenient package.

We're adding gingerbread and candy cane seasonal disposable vape flavors under our in-house brand in time for the holidays. And finally, taking a page from the beer and sneaker industries. We recently launched our small batch exclusive loyalty programs for Nature's Heritage. We surprised in delight our Massachusetts loyalty members with an e-mail letting them know that a rare strain in Nature's Heritage in very limited supply will be available the next day only at our Panacea dispensaries. This has proven to be among the best marketing campaigns we have done, as the buzz we are generating is very high. In fact, the initial product drop at our Middleborough dispensary sold out within an hour, and our loyalty members are clamoring for the next strains to drop.

That concludes my operational review. I will now turn the call over to my good friend, Rene.

Rene Gulliver: Thank you, Tim, and good morning, everyone. I would like to start with a brief overview of our third quarter financial results. Revenue totaled $38.8 million in the quarter, which represents a 14% year-over-year increase and a 6% sequential increase. As Tim discussed, our year-over-year and sequential growth results were driven by both our wholesale and retail operations. Moving to gross margin, our non-GAAP gross margin was 45% in the quarter, which is a decline versus the comparable period in 2022. This decline was attributable to a number of items including, macroeconomic factors, both domestic and global in nature. These factors have driven up our input costs and have resulted in delays in opening our new dispensaries and other operations due to supply chain challenges.

In addition, we have experienced increased competition in Massachusetts and Illinois. We expect gross margin to improve going forward as new assets come online and continue to ramp. Our non-GAAP operating expenses were $12.8 million in the quarter compared to $8.7 million in the third quarter of 2022. This $4.1 million increase was due to planned increases in personnel, marketing, and G&A to support our strategic growth initiatives. Non-GAAP OpEx was essentially flat as a percentage of sales versus the second quarter. And we continue to expect OpEx to decrease as a percentage of sales, as our top line increases and leverages our fixed costs. Our adjusted EBITDA was $6.1 million in the quarter compared to $8.6 million in last year's third quarter, due to the previously mentioned growth investments, which require the company to incur costs prior to revenue ramping up.

Now turning to the balance sheet, we ended the third quarter with $13.3 million of cash and equivalents, which decreased slightly versus our second quarter cash balance of $14.6 million. Our net working capital remained strong at $15.5 million compared to $28.7 million at the end of last quarter. Cash flow from operations was $7.9 million, and we remain on track for our fourth consecutive year of reporting positive operating cash flow. Moving on to our 2023 financial outlook. While top-line growth remains well above industry average, our margins have not improved as anticipated due to the combination of the delayed dispensary openings and their subsequent sales ramps combined with the increased operating costs associated with these new assets.

As a result, our 2023 financial targets are as follows. Revenue of $148 million to $150 million. The low end of this range implies the current revenue trend, the high end of the range primarily reflects the Illinois wholesale operations coming online in Q4. Non-GAAP gross margin of approximately 45%, which is lower than the 48% originally guided due to the reasons previously stated. Non-GAAP adjusted EBITDA of $27 million to $32 million, down from the $32 million to $35 million we previously guided. While EBITDA did not meet expectations, as we previously explained, we view the lower target as more of a delay in generating EBITDA into 2024. CapEx of $22 million to $25 million, down from our previous $30 million guidance due to construction delays.

We expect the remainder of the original $30 million guidance will be spent in 2024 to complete the expansion of our Maryland, Illinois, and Missouri cultivation and processing facilities. That concludes my financial review and outlook. I would now like to turn the call back to Jon for his concluding remarks.

Jon Levine: Thank you, Rene. As our results illustrate, we continue to execute our strategic plan. I'm truly pleased with the progress the company has made, despite regulatory and construction delays and increased competition. MariMed still has one of the most conservative balance sheets in the industry, which has allowed us to accelerate our revenue growth faster than the overall industry. Looking ahead, we believe our top-line growth will continue to outperform the greater industry. As Rene explained, all our top-line growth remained strong this year. Our margins did not meet expectations due to higher input costs, regulatory, and construction delays, carrying costs associated with building several of the new assets, so quickly and macroeconomic pressures on the consumer.

That said, our new assets are ramping, which will lead to margin improvements in 2024. These new assets will continue growing sales, allowing us to finally leverage the investments we made in personnel, infrastructure, and growth over the past 18 months. In addition to our focus on growth and improving our financial results, we also take seriously our responsibility to be an industry thought leader. Last quarter, we were proud to call for the elimination of 280E through our staging of the Boston 280E THC Party. We generated over 100 million media impressions with that initiative. We'll let history determine if our stunt was a nudge that the Department of Health and Human Services needed to deliver its recommendation to reschedule cannabis shortly afterwards.

As you know a Schedule 3 classification would mean the end to 280E, saving us, to most other cannabis companies, millions of dollars in tax payments. Before I wrap up our call, as die-hard sport fan, I love watching the amazing post-season run of the Texas Rangers. The Scrappy Rangers reminded me of how far MariMed has come these past few years. Like them, we were not considered the most -- as a top tier competitor, like the Rangers. We have invested our money wisely, built a world-class team, and embraced the underdog growth. We have put all these pieces together ready to be a champion among our peers. Looking ahead at 2024, which is a couple months away, we are once again poised for a championship run. The heavy investment in the organization is substantially complete, and we are ready to begin reaping the fruits of our labors, in terms of accelerated revenue and profit growth in 2024 and beyond.

I would like to thank all our employees for their continued hard work and dedication to helping MariMed achieve our mission to improve the lives of people every day. In fact, over the past 12 months, our employees have helped to improve the lives of nearly 5 million patients and customers with our products. Operator, open the lines for questions.

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