MariMed Inc. (PNK:MRMD) Q2 2023 Earnings Call Transcript

MariMed Inc. (PNK:MRMD) Q2 2023 Earnings Call Transcript August 3, 2023

Operator: Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the MariMed Inc. Second Quarter 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I will now like to turn the conference over to Mr. Steve West, Vice President of Investor Relations to begin the conference. Please go ahead.

Steve West: Good morning, everyone. And welcome to MariMed’s second quarter 2023 earnings call. Joining me today on the call are Jon Levine, our Chief Executive Officer; Tim Shaw, our Chief Operating Officer; and Susan Villare, our Chief Financial Officer. 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 and other factors is contained in the risk factor 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.

Additionally, we will refer to certain non-GAAP financial measures on this call, which are reconcile in our earnings release and our supplemental slides located on the investor’s page of our website. Finally, our third quarter 2023 earnings release is tentatively scheduled to be issued after the market closes on November 1, 2023, and our analyst call is schedule to be held the morning of November 2, 2023 at 8 a.m. 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, which was the result of continued expansion in our core states of Massachusetts, Illinois and Maryland, and in two new state which was Ohio. For the 14th consecutive quarter we reported positive adjusted EBITDA and we remain on track to generate our fourth consecutive year of positive operating cash flow. We had a very busy second quarter, and I would like to briefly highlight four of our key achievements. First we received GMP certification of our production kits in Maryland, as well as approval to produce and sell high-dose edibles once again, which we are selling extremely well. In fact, Betty’s Eddies in Maryland are selling at record levels and that was before adults-use begin on July 1st.

Second, we finally received the long-awaited regulatory approval to open our adult-use dispensary in Beverly, Massachusetts, marking our third operating dispensary in this state. Third, we launched a limited edition Betty’s Eddies chew tube called Beachtime Betty’s. This fruit chew was introduced into select dispensaries throughout Massachusetts, Maryland and Delaware, and has been a hot seller all summer. And fourth, I’m excited to report, we opened our first medical dispensary in Tiffin, Ohio, marking the 11th dispensary MariMed owns or manages across its footprint. Subsequent to the end of the second quarter, we began adult-use sales in Maryland on July 1st, as expected sales have been very strong, with our Annapolis dispensary trending more than two times, but it was before adult-use.

Additionally, our wholesale business is setting new monthly records, both high-dose edibles and now adult-use sales are growing virtually every day, and we are working feverishly to meet the increased demand. It could not be more excited for Maryland’s long-term adult-use potential, which we have always believed could be bigger than Massachusetts. With that, I will now 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, where revenue increase 5% year-over-year, and increase 5% sequentially compared to the first quarter of 2023. This acceleration of sales versus the first quarter was in line with our expectations. According to BDSA data, we continue to outperform industry throughout most of the footprint during the second quarter. For instance, Massachusetts grew 5% sequentially, while we grew our retail business 36% driven by the opening of our two dispensaries in Beverly and Quincy. In Maryland, which grew 5% sequentially, MariMed’s retail sales grew 80% sequentially as our Annapolis dispensary continued its strong ramp from its November 22 opening, and that was before adult-use commenced.

Finally, as we discussed last quarter, we have now implemented delivery in all three of our Massachusetts dispensaries. We have also implemented delivery into both of our managed dispensaries in Delaware. Delivery is a small part of our overall online business, but we are pleased with the initial results, and we believe it will be a nice contribution over time within our high margin digital business. We are committed to providing the highest quality cannabis products to our patients and customers in the most convenient way for them. Our omnichannel approach to retail is a proven strategy among the largest retail in the world, including Domino’s and Walmart. Now we would like to discuss our wholesale business. Wholesale revenue increased 39% year-over-year and 6% sequentially driven primarily by strong organic growth in Maryland.

Our wholesale growth continues to outperform competition, which is a testament to the strengthening quality of existing and new product offerings across our brand portfolio, as well as the continuum momentum of our talented sales force. In fact, this was the sixth consecutive quarter of sequentially higher wholesale revenue in the fourth consecutive quarter of record sales within our wholesale business. At this rate, we believe it is just a matter of time before Maryland overtakes our Massachusetts wholesale business. We are pleased with the overall momentum we are experiencing both of our retail and wholesale businesses. Now let me quickly update you on the progress of our 2023 growth initiatives. During the quarter we completed two of our eight planned expansion projects, which was the opening of our adult-use dispensary and Beverly Massachusetts and our medical dispensary in Tiffin, Ohio.

We remain on track to complete our adult-use dispensary in KC, Illinois, which we expect to open in the third quarter. Our craft processing and cultivation facility in Illinois and our processing kitchen in Missouri are expected to open in 2023, but on a slower time table than initially planned due to circumstances outside of our control. Last, we continue to make progress on the expansion of our Maryland and Massachusetts cultivation and processing facilities, which we believe will be operational early 2024. On the marketing front, as Jon mentioned, we launch our seasonal beachtime Betty’s this past quarter, which is delicious and the perfect way to relax on these hot summer days. Looking ahead, we plan to launch several new products in the second half of 2023.

To include Bubby’s Baked Blueberry Muffin, vibations advanced hydration, which repositions the brand as a go to hydration option for any occasion throughout the day, all our vibations now have been reformulated to improve efficacy and onset within 15 minutes. Additionally, we are expanded vibations from four to seven flavors. Let me wrap up my marketing discussion with an update on the Nature’s Heritage “Keep It Fresh” campaign. We have successfully launched the new share of cake strain in mid July in Massachusetts. In our Double Krush strain, on the 4th of July and Maryland to celebrate our nation’s independence and Maryland’s commencement of adult-use sales. I’d like to add that our Nature’s Heritage, Flower remains one of the top-selling flower brands in Massachusetts and Maryland, and still commands a significant premium due to its superior quality.

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Last week I visited our Maryland operation and also did a secret shopping tour of several adult-use dispensaries. I asked a bud-tender at a Baltimore dispensary about Nature’s Heritage, Flower. Without hesitation, she said it was her favorite flower because of its premium quality and superior smoke that she could not afford it at all the time. Instead, she buys it for special occasions, like birthday parties and holidays. As the father of Nature’s Heritage, that was music to my ears. Her story reminded me of myself and my relationship with my favorite wine, Silver Oak Cabernet. I can’t afford to drink Silver Oak every day due to its high price, but I do drink it on special occasions with family and friends. If Nature’s Heritage can be considered as the Silver Oak of cannabis, I will die a happy man.

I am a 100% certain, the love and attention we put into Nature’s Heritage, including barrel aging and hand trimming, is what makes it stand out as the best. We will never cut corners when it comes to the quality of Nature’s Heritage, or our other premium products for that matter. That said, we just processed our first flower harvest from our new Quincy cultivation facility. Bringing this facility online allows us to harvest our in-house-branded flower to much lower cost, which will internally to higher quality with an added benefit of increased margins. Our MariMed continuous process improvement and cost discipline are in our DNA. We always explore ways to lower cost and increase shareholder value while maintaining the high quality products our customers have grown to expect.

And that concludes my operational review. I will now turn the call over to Susan.

Susan Villare: Thank you, Tim, and good morning, everyone. I’d like to start with a brief overview of our second quarter 2023 financial results. Total revenue was $36.5 million, which increased to 11% year-over-year and increased 6% sequentially. Both of these growth metrics were an acceleration versus our first quarter sales results. Our year-over-year and sequential growth were driven by our retail and wholesale operations, partially offset by lower revenues from other sources. Moving to growth margin, our non-GAAP growth margin was 46%, which was a slight improvement both sequentially and year-over-year. We expect our quarterly growth margin will continue to improve over the remainder of 2023 as our new generating revenue assets ramp.

Our long-term non-GAAP growth margin goal remains at 50%. As we said before, bringing new facilities online has a short-term negative impact on our growth margin. Our non-GAAP operating expenses were $11.7 million in the second quarter compared to $7 million in the comparable period in 2022. The $4.1 million increase was due to plan increases in personnel, marketing, and G&A to support our strategic growth initiative. Looking ahead, we expect OpEx to decrease as a percentage of sales as our revenue growth begins leveraging our fixed cost. Our adjusted EBITDA was $6.3 million compared to $8.9 million in the comparable period in 2022 due to the previously mentioned growth investment. Now, turning to our balance sheet, we ended the second quarter with $14.6 million of cash and equivalent, which decreased versus our first quarter 2023 ending cash balance of $21.6 million.

The decrease in cash was primarily attributed to $5.7 million for planned capital expenditures related to our expansion projects. Our networking capital was $28.7 million in the second quarter compared to $34.9 million at the end of the first quarter. Cash flow from operations for the quarter was a positive of $1.3 million, and we remain on track to be cash flow positive for the full year of 2023, which would mark our fourth consecutive year of being cash flow positive. Moving on to our 2023 financial outlook. While Maryland adult-use sales are doing well, and we have increased our revenue outlook for both the retail and the wholesale business within the state by almost $10 million. This was offset by construction and regulatory delays for a two new wholesale locations in Illinois and Missouri, as well as some of our newly minted dispensaries not ramping as fast as the originally anticipated.

As a result, our 2023 financial targets are as follows. At least $150 million in revenue for the year, non-GAAP growth margin consistent with fully year 2022, which was 48%. Non-GAAP adjusted to EBITDA of $32 million to $35 million, which is a slight change from our previous guidance and $30 million in CapEx. That concludes my review of our second quarter financial results and our full year 2023 outlook. I would now like to turn the call back to Jon for his concluding remarks.

Jon Levine: Thank you Susan. As you can tell from our results, we continue to execute on our strategic plan and maintain our financial discipline. MariMed still has one of the most conservative balance sheets in the industry, which is open doors to allow us to accelerate growth as faster rate than the overall industry. We believe this trend will continue for the foreseeable future. We utilize these past couple years to transform our business through accretive acquisition and we intend to pursue additional opportunities. I’m truly pleased with the progress the company has made against our strategic plan this year, despite continued industry challenges. One ongoing challenge is the classification of cannabis as a Scheduled 1, Controlled Substance, resulting in the unfair 280 federal tax that the industry pays.

MariMed can shoulder this tax burden, it’s been smallest independent cannabis businesses that are most negatively impacted and continually shuddering their businesses as a result. And of course, consumers are ultimately punished, the most with higher prices at the register. As an industry leader, we have a corporate responsibility to bring more awareness to the issue. Last month we did that by reenacting one of the most famous tax protests in our nation’s history, the Boston Tea Party, which was conducted 250 years ago. Our Boston 280E THC Party was well received by the industry and the media, and we are hopeful it increased awareness that will lead to real change in Washington DC, in fact, it better. It was harder than hell in those colonial outfits, but seriously, given the 200 million media impressions, I would classify this event as a big success in raising awareness, and message delivered.

As our recognition grows, because of our financial performance, great brands and operational excellence are platform to communicate important issues also increases. We will continue to seek ways to use it responsibly to support the entire industry as well as bring more awareness to MariMed. Lastly, as a die-hard sports fan, I’ve enjoyed drawing comparison between MariMed and sport these past few earnings calls. So the upcoming of the football season, I find myself an awe of NFL training camps. These incredibly talented players come together and work very hard in extremely hot conditions, being able to focus on a common goal of winning as a team. I can’t help, but think of MariMed the same way. I would like to thank all of our employees for their hard work and dedication to winning.

In the NFL, winning means a championship. For MariMed, winning means achieving our mission to improve the lives of people every day. We can only do that with our amazing family of talented employees. I’m proud that MariMed has put all the ingredients together. You have the necessary capital, financial discipline, operating expertise, award-winning brands, and the team to take MariMed to the next level and beyond. Before I close, I’d like to thank our investors for their long-term support. It would be presumptuous to call them our fans, but many of them tune in. So these calls and follow up of MariMed’s news as closely as they do their favorite sports teams. We appreciate you and thank you for your support. Operator, you may open the line for questions.

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Q&A Session

Operator: Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] Your first question will come from Andrew Semple at Echelon Capital. Please go ahead.

Andrew Semple : Good morning, team, and thank you for taking my questions. First one here is I just want to ask on the guidance for 2023. I was crunching some numbers on what was implied by that for the second half of the year. And found that it would apply EBITDA margins to somewhere between 23.5% to 27% in the second half compared to about 19% in the first half. Or roughly over 400 to 700 basis points of EBITDA margin improvement. I’m just wondering where you expect to see some of that margin pick up. What are the big drivers there? I presume there the adult-use is a big contributor. But are you seeing any opportunities for margin pick up in some of your other states and markets where you operate?

Susan Villare: Thanks, Erin. This is Susan. Andrew, sorry. I understand your question. And so essentially we have reiterated our guidance of the $150 million for the year. And so this past quarter, you saw we increased sequentially from $34 million to $36 million. And so we do have that we are ramping, revenue would be a big driver of our profitability to get to the $150. And that’s really fueled by the two new dispensaries where you had opening in Massachusetts in the first half as well as Ohio. Our biggest quarter we’re projecting is Q4, where we’re predicting that we’ll have our Illinois and Missouri starting to generate revenue. So we do believe with the higher revenue. We can leverage our infrastructure to drive margins above the 46% that has been consistently this quarter last quarter and a quarter of a go.

And essentially on the OpEx, we are kind of holding firm of where we’re at. We have enhanced our infrastructure for this growth. And so we expect the OpEx to remain relatively flat.

Andrew Semple : Great. That’s helpful. Going on to the second question, I’d love to hear maybe some more color of what you’re seeing in Maryland. I know it’s early days there. But how are supply conditions in the state? How is the Annapolis store doing? And what are you seeing in terms of consumer purchasing behavior? For example, the most of the medical patients now switched to the adult-use channel or you still seen the medical sales hold up. Love to hear your thoughts on what you’re seeing on the early days of the Maryland adult-use market?

Tim Shaw: Hey, Andrew, this is Tim Shaw. Appreciate the question. Ye, we’re very excited and bullish on the Maryland market. We’ve seen our Annapolis store double its revenue from previous months since adult-use started. And it’s interesting to see that, no, we have not seen the medical, I mean, it’s only one month in, but we haven’t seen the patients convert to adult-use. So, we believe there will be similar to Massachusetts. They a dual market that will participate in both. The trends are going in the right direction. Our supply is doing real well. The market is looking for more and more flower. Anything we can grow, we can sell right now, and our brands are still staying above the fray as premier products in the market.

Andrew Semple : Great. It’s very helpful. And maybe last one for me. Just on the CapEx guidance of $30 million for the year. In the first half, Maryland invested kind of well below that piece. Should we be expecting a catch up in the second half? How should we be thinking that from a from a cash flow perspective? Or do you think some of that leads into 2024 with some of the regulatory delays that you mentioned?