Justin Dye: Yes. I think Nirup, you said it well, a heavy focus on driving synergies and optimizing our operations. So operational excellence with all of the stores, we have work to do there and the team is, we’re excited about the opportunity there. We also have opportunities in the supply chain and to continue to use lean processes to drive efficiencies, which we think is a competitive advantage for us. And we think there’s more to have and we’ll use our size and scale to become very efficient, even more efficient than we are today. So heavy focus there while still remaining open to strategic opportunities, but a heavy focus on optimizing what we have today.
Sean Mansouri: Thanks, Justin. Can any of you expand on the initiatives in place to improve flower yields and quality while lowering input costs?
Nirup Krishnamurthy: I mean, yes, I can. Obviously, as we acquire these gross we have — it takes a while to integrate them and get them to be in the best shape possible to produce the best results. And that’s what we have done with our acquisitions in both Colorado and in New Mexico. We have implemented standardized SOPs for all parts of the growth cycle. We have implemented 5S and then lean practices across all our facilities. We have also invested in some CapEx in our manufacturing facilities. For example, for pre-roll automation, we switched from manual pre-rolls to automated pre-rolls, which has significantly enhanced quality and costs. And we also ensure that we don’t — we utilize our facilities. For example, we have our cultivation farm at Southern Colorado that has in theory, a short cycle during the summer months where you can’t grow a full regular indoor harvest — indoor growth cycle.
So we decided to use auto flower and get a bunch of biomass for our extraction facilities, so optimizing utilization of our facilities, implementing human processes, standardized SOPs and a bunch of other things. And I think we are starting to see the results of that in a quite effective way.
Sean Mansouri: Thanks, Nirup. This next one is probably better for Forrest. Forrest, can you provide additional color on the timing of expected benefits from the new ERP implementation?
ForrestHoffmaster: Yes. Thanks, Sean. As Justin mentioned our integrated supply chain competitive advantage, and in terms of timing, just the short answer is, we’re bringing all facilities up onto one platform. Expect to have that rollout complete in late quarter one early quarter two 2024. Yes, at a high level benefits, we’ve got eight cultivation manufacturing facilities producing over 35 to 40 strains in each state and something close to 200 different SKUs with roughly $31 million, $32 million of total inventory in the system. So we’re working in the store to build our competitive advantage there. We feel like we have a cost advantage to drive informed decisions with insights through real time system that — and that will free up the additional working capital instead of having it locked up in inventory, improve our retail in stock positions.
It’ll support our wholesale growth. We’re starting to see strong signs in the New Mexico market and improves supply chain efficiencies overall, which should ultimately have a material margin improvement system wide. As mentioned, Nirup also mentioned these implementations come with write on adjustments both ways, and as we continue to move through ERP implementation, I expect we’ll see some kind of adjustments over the coming months as we get to the other side of the roll-outs, just to get our inventory balance straight and loaded into ERP this quarter.
Sean Mansouri: Thanks, Forrest. This next one that came in via e-mail, can you give us an update on the Everest Apothecary integration?
Forrest Hoffmaster: I can take that. Nirup discussed earlier in his opening comments, it’s going well. In quarter three, we’ve had our full attention on integration, creating the synergies there with that banner while addressing the overall New Mexico competitive landscape that Nirup talked more about, as did Justin. But within the four-walls store conditions, retail executions improving, as are the end stocks, while we rationalize SKUs getting discontinuing slow moving items and bringing in a broader, deeper assortment. And we’re starting to see meaningful sequential basket improvement over the last few months. We just consolidated the facilities and moved them over to our ERP platform, so they were one of the early facilities onto the ERP system, which will help us leverage our costs and create greater visibility into the real cost of manufacturing.
And while we’re still working through the acquired inventory, we’ll ultimately be able to realize those gains from consolidation and lower overhead with what we believe will be better service to retail and wholesale operations. So overall, so far so good.
Sean Mansouri: Awesome. Great to hear. This could go to either of you. What are your thoughts on regulation enforcement in New Mexico and that Schwazze has taken any initiative to support this, recognizing that Justin covered some of this as well.
Nirup Krishnamurthy: Yes. Justin has already covered some of that. We’re — Dan Pabon is our Chief Regulatory Officer, Chief Policy and Regulatory Officer, and he and I are working closely with the state’s Cannabis Control Division to review guidelines and regulations to reduce negative impacts of the illicit market and ensure compliant operations. Illicit sales, especially New Mexico pose a safety threat to all consumers. We are committed to supporting the state however we can as the state’s program develops and we — off late recent activity, we are seeing — we’re hopeful of better enforcement and ensuring that the consumers get the right products for consumption.
