Medicine Man Technologies, Inc. (PNK:SHWZ) Q4 2022 Earnings Call Transcript

Medicine Man Technologies, Inc. (PNK:SHWZ) Q4 2022 Earnings Call Transcript March 29, 2023

Operator: Good afternoon. My name is JP, and I will be your conference operator today. At this time, I would like to welcome everyone to the Schwazze’s Fourth Quarter Conference Call. All lines have been placed on mute to prevent any background noise. Thank you. Ms. Joanne Jobin you may begin your conference.

Joanne Jobin: Greetings, and welcome to the 2022 fourth quarter and year end conference call and webcast for Schwazze. We are being hosted by Justin Dye, Chairman and Chief Executive Officer; Nirup Krishnamurthy, President; and Forrest Hoffmaster, Chief Financial Officer. Following their presentation, management will take questions submitted via the web link found on Schwazze’s Investor Relations website and in the earnings press release. I would also like to remind you that Management’s prepared remarks and answers to your submitted questions may contain forward-looking statements, which are subject to risks and uncertainties. Examples of forward-looking statements include, among others, statements regarding federal and state legislation and regulation and Schwazze’s future results of operations and financial position, business strategy and plans and objectives for future operations.

Such forward-looking statements may be preceded by the words plan, will, may, continue, anticipate, become, build, develop, expect, believe, poised, project, approximate, could potential or similar expressions as they relate to Schwazze. Investors are cautioned that all forward-looking statements involve risks and uncertainties that may cause actual events, results, performance or achievements to differ from those anticipated by Schwazze at this time. Additional information concerning factors that could cause events, results, performance or achievements to differ materially is available in Schwazze’s earnings release made available before this call and available on Schwazze’s Investor Relations website and in Schwazze’s Form 10-K for the year ended December 31, 2022.

In addition, other information is more fully described in Schwazze’s public filings with the U.S. Securities and Exchange Commission, which can be viewed at www.sec.gov on www.sedar.com or on the company’s Investor Relations website. Also, Schwazze may discuss non-GAAP financial measures during today’s call. A reconciliation of the differences between the non-GAAP financial measure discussed during the call with the most directly comparable GAAP measure can be found in Schwazze’s earnings press release made available before this call and available on Schwazze’s Investor Relations website. I would now like to turn the call over to CEO and Chairman, Justin Dye.

Justin Dye: Hello, and thank you for joining us this afternoon. I will provide a brief overall business review and our President, Nirup Krishnamurthy, will provide operational details before turning the call over to our newly appointed CFO, Forrest Hoffmaster, who will review our quarterly, and year-end financial results in detail. I will then conclude our presentation with some final thoughts. And afterwards we would then be happy to take your questions. I am pleased to report that for 2022, Schwazze once again outperformed the Colorado market. We successfully entered the New Mexico medical and recreational market and increased our total revenues by 47% year-over-year, with retail sales growing 92% over prior year. We also generated $11.4 million of after tax cash flow from operations in 2022.

Through hard work, diligence, our dedicated attention to detail, we continued outperform our markets despite an ongoing challenging environment. I am extremely proud of the Schwazze team, which I believe is one of the best and strongest in the industry today. We’ve worked hard to continue to grow our market share outperforming our markets in Colorado by 11%, increasing our profitability rate with ongoing improvement, and we continue to generate free cash flow from operations after paying taxes and meeting our capital spending and debt obligations. Our team continues to deliver on our vision to become the most admired cannabis company in the industry providing trusted products, brands, and exceptional customer experiences. Schwazze continues to execute its strategy to go deep in our operating states and build customer loyalty and market share.

Our long-term plans of building a regional powerhouse, delivering a wide assortment of high quality products with exceptional customer service backed by our operating playbook is a winning combination for our customers, our employees, and our shareholders. And now I would like to turn the call over to our President, Nirup Krishnamurthy, to take us through some of our accomplishments for 2022.

Nirup Krishnamurthy: Thank you, Justin. Let’s review the highlights of the fourth quarter of 2022, followed by the highlights of our annual performance. Like the rest of our industry partners, we continue to navigate broader economic conditions in our country, impacts of the failure of the SAFE Banking bill, as well as dynamics in our core markets in Colorado and New Mexico. Despite these challenges, our team delivered another record year and quarter in terms of revenue and adjusted EBITDA growth. We have an experienced and dedicated team, and I would like to thank all of our team members for their hard work, enthusiasm, operational excellence, and most of all, their commitment to our customers. In 2022, the company completed seven acquisitions and opened six new stores not related to acquisitions, which increased the company’s retail presence from 18 dispensaries in 2021 to 41 dispensaries as of December 31, 2022, 16 in New Mexico and 25 in Colorado.

The company now has five operating cultivation and two manufacturing facilities in Colorado and New Mexico. All these accomplishments are too numerous to go through one by one on this call, but they’re listed in our financials and of course, in our press release. The first quarter of 2023, we continue to roll out our plans. We rolled out the enhanced custom e-commerce platform in New Mexico for our Greenleaf customers. We opened two new all-green locations in New Mexico, one located in Albuquerque and the other in the southern town of Carlsbad and in Colorado, we signed a definitive agreement to acquire retail locations in Fort Collins and Garden City, two attractive markets whose customers they currently do not serve. We have previously announced our licensing agreement with Lowell Farms and have now successfully launched their premium line of pre-roll joints to dispensaries rates in Colorado and New Mexico.

In addition, we are introducing a Schwazze brand called EDW, which stands for Every Day Weed. The first product being launched in the second quarter under this brand in both our markets will be a half-ounce, full flower, roll your own joint for our core customers. We are excited about our multi-year house of brands strategy designed to meet the needs and growing demand of customers in our markets. On April 1, 2022, Schwazze commenced selling both recreational and medical cannabis in New Mexico. We opened six new stores in New Mexico last year and two more in the first quarter of 2023. These stores increase our presence in key markets, including Albuquerque and Southern New Mexico cities such as Sunland Park, Ruidoso, Alamogordo, and Carlsbad.

We have incorporated our operating playbook here as well and are now reaping the rewards; plans to open additional stores throughout the state will be focused on adding coverage to areas where we currently do not serve customers. We’re also focused on our internal operations to ensure we are being as efficient as we can to drive lower cost of goods from our production facilities by applying lean practices and lower operating costs at our dispensaries through efficient scheduling and inventory management, we expect that these efforts, along with our retail playbook will further improve our margins and our positive cash flow from operations this year after meeting our tax and debt obligation along with CapEx spending. Now I would like to briefly give you our view on our two markets.

Colorado in particular saw a material decline in wholesale pricing in 2022, which affected retail pricing, which in turn led to pressure on top line revenues. We as a company have been focused to ensure that our volumes in terms of unit sold, remain steady in these conditions and have been rewarded with our results. We expect pricing pressure to continue in 2023, but we are now well positioned to drive results in these conditions. In the New Mexico, the overall market has been steady since the launch of the adult-use program. However, the number of retail licenses has more than doubled since April, putting pressure on store level sales. But again, our operating playbook combined with our high quality product assortment has meant that our Greenleaf dispensaries, our first choice for customers in the state.

Our combined revenue for the quarter totaled $40.1 million, compared to $26.5 million in the same quarter last year, representing a 51% increase. Here are some key quarterly retail statistics for our Colorado and New Mexico operations. Two-year stacked IDs for Colorado were down 6% and one-year IDs were down by 9% year-over-year. Average basket was $60.86, up 1.5%. Customer visits were 416,717, and that was down 10.5%. The two-year stacked IDs for New Mexico were up 57% and one-year IDs were up by 43% year-over-year. Average basket size was $52.54, down 11.8%, and customer visits were 219,665, up 61.7%. Here are the comparable year-over-year retail statistics for our Colorado and New Mexico operations. Retail statistics 2022 compared to 2021 for Colorado and New Mexico included the following: in Colorado, one-year sales ID were down 10.5% and two-year sales ID were up 0.1%.

Average basket size was 60.32 or down 1.9%. Customer visits were 1.685 million or down 8.8%. In New Mexico, one-year sales ID were up 33.8% and two-year sales ID were up 48.2%. Average basket size was 54.04 or down 11.2%, and customer visits were 734,000 or up 50.7%. We are pleased to report as previously noted that we once again outpace the state of Colorado by 11%, a remarkable achievement when you consider the challenges faced by the industry and in particular, Colorado at this time. We will continue to evaluate additional opportunities across the cannabis industry with a primary focus on retail expansion with adequate cultivation and manufacturing assets supporting the expansion. Our criteria for potential acquisitions include dispensaries that compliment our footprint and have a loyal customer base, well-branded products that compliment ours and accretive to the bottom line with material synergies.

Any announcements regarding expansion intentions will be made once we have reached definitive agreements. Lastly, we have been openly discussing the overall shift away from our consulting business, and late this year we made the decision to completely move away from this business to concentrate our resources and our core business. This is reflected as a loss on disposition at year-end. And now I’d like to turn the discussion over to our newly appointed CFO, Forrest Hoffmaster to continue our financial review.

Photo by Myriam Zilles on Unsplash

Forrest Hoffmaster: Thank you, Nirup. I’ll review our financial results for the fourth quarter and year end 2022. As mentioned earlier, fourth quarter revenues of $40.1 million, increased $13.6 million compared to $26.5 million for the same quarter last year, while seasonally lower than third quarter revenues of $43.2 million, the year-over-year quarterly increase was 51% as compared to the year-over-year third quarter increase of 36%. Adjusted EBITDA for Q4 2022 was $13.3 million and 33% of revenue compared to $7.5 million and 28% of revenue for the same period last year. Once again, we generated positive cash flow from operations of $5.4 million after our tax and debt related obligations. For the year ended December 31, 2022 we achieved $159.4 million in revenue, an increase of 47% compared to $108.4 million in revenue in 2021.

Much of our year-over-year revenue growth was driven by our retail segment with the New Mexico entry acquisitions in Colorado and six new store openings in New Mexico. Wholesale revenues continued to be affected by market over supply and price compression. Total cost of goods and services was $74.3 million compared to $59.1 million for the year ended 2021, representing an increase of $15.3 million or approximately 26%. This increase is primarily due to volume from the New Mexico acquisition and subsequent opening of six new stores in 2022. The rate improvement is the result of the company’s vertical integration efficiencies, buying power and retail playbook. As a result, gross profit increased to $85 million or 53% of total revenue compared to $49.4 million or 46% of total revenue during the same period in 2021.

Operating expenses totaled $72.2 million for the year ended 2022 compared to $38.9 million for 2021, representing an increase of $33.2 million. This increase was largely due to increased selling, general and administrative expenses predominately attributable to expenses related to acquisition activity and increased overhead associated with the entry into the New Mexico market, and certain one-time impairment charges of $8 million of goodwill associated with our non-plant touching wholesale businesses serving the broader cultivation markets. Other expenses for 2022 were $16.4 million compared to $8.5 million of other income in 2021. This was largely driven by cash and non-cash debt related interest obligations and a $4.7 million one-time disposition of assets mostly associated with the discontinuation of our consulting business as part of our strategic move to shift our full-time attention to our core segment.

As a result, Schwazze generated a net loss of $18.5 million compared to net income of $14.5 million for the year ended 2021, largely related to the impairment charge, interest expense and disposition of assets. Adjusted EBITDA was $52 million, representing 33% of revenue compared to $32.2 million and 30% for the same period last year. This is derived from operating income and adjusted for one-time expenses, merger and acquisition and capital raising costs, non-cash related compensation costs and depreciation and amortization. Please see the financial table in our press release for adjusted EBITDA details. As already mentioned for the year ended 2022 we generated $11.4 million in positive cash flow from operations compared to $8.4 million for 2021 after meeting our tax and debt obligations and CapEx spending.

We ended the year with cash and cash equivalent of $38.9 million. Given our recent performance and current cash position, we remain optimistic that we can successfully integrate acquired companies and continue our expansion and M&A plans. Thank you for your time today, I’d now like to turn it back to Justin, who will open the call to questions-and-answers.

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Q&A Session

Justin Dye: Thank you, Forrest and Nirup. Before we open the call to Q&A, I would like to thank you and all your continued support, encouragement and interest in Schwazze. We would now be happy to take your questions. To ask a question, please click on the link on the Investor Relations portion of our website and submit. Thank you.

A – Joanne Jobin: Thank you, Justin. Good afternoon, everyone. My name is Joanne Jobin, and I am the IRO for Schwazze, and I’ll be moderating the Q&A portion of the call today. The first question is; how is the New Mexico acquisition performing? That seems to be a big question on everybody’s mind. Justin?

Justin Dye: Yes. Thanks Joanne. Nirup, will you please €“ will you please take that one?

Nirup Krishnamurthy: Sure, Justin. Well as you all know, we closed on the acquisition in New Mexico with 10 dispensaries, three farms and a MIP on February 7 of last year. And on April 1st the state went recreational meaning adult use program. And I will tell you that we have been very happy with what has happened in New Mexico. It has been a fantastic acquisition for us. In addition to the 10 stores since we acquired we will added six more stores in key areas of the state especially around the southern part of New Mexico. And we are seeing a really good performance in all of our stores in New Mexico. We have maintained our market share and we are seeing that our stores are very quickly becoming the first choice for customers over in New Mexico.

We have a new President we appointed in the first part of this year. His name is Ken Diehl. And he has done terrific job in implementing our operating playbook and driving customer traffic and promotional effectiveness across the state. And so we are really happy and we in addition to the six stores we added last year, in the first quarter of this year, we added two more locations bringing the total to 18. And we expect to continue to grow the state and expect to fill in other areas where we currently do not serve customers. So overall, it’s going as well as they can expect it to. Thank you.

Joanne Jobin: Thank you, Nirup. Keeping on with the New Mexico acquisition we’re getting a lot of questions regarding some of the states surrounding Colorado and New Mexico and that those states are considering some form of legalization. Do you anticipate any impact on revenues on your border areas in your dispensaries?

Nirup Krishnamurthy: Yes. I don’t know which states we are considering here, but if you look at surrounding states we have Arizona, Nevada, which are already legal and we have Texas, which €“ where the medical program is legal. And so at least in the short-term I do not expect any material impact to our sales in both these states.

Joanne Jobin: Thank you, Nirup. Thank you. The next question is the €“ you mentioned the launch of EDW and your partnership with Lowell Farms. Can you tell us more about that and any other brand activity, and can you update us on how Autograph has been going?

Nirup Krishnamurthy: Sure, Joanne. We in terms of our retail footprint we have 43 locations that are currently operating in both these states. This kind of serves as a platform for us to embark on a multi-year product strategy or a product brand strategy that allows us to develop unique products within our own brand portfolio, and we are starting to do that. Today in Colorado we sell flower, we sell pre-rolls, we sell a vape line using Purplebees, and we are starting to introduce other products. So as announced in the last call we entered into a partnership with Lowell Farms, and I’m happy to announce that we have launched it in both states in different fashion. In Colorado we decided to go outside of our network to begin with, to generate more revenues and we are happy with the demand and we are actually ramping-up our production in Colorado to meet our demand.

So the demand has been solid, and April next month we’ll be launching it internally in our own footprint with a big €“ with a big promotion for 420. So the overall, the Lowell Farms operations in Colorado has gone really well and really we are ramping our production to meet demand. In New Mexico we went the other way. We launched it in our stores in New Mexico, and now we are starting to expand outside our footprint. So the margin profile €“ the price points are a little higher because Lowell Farms is a premium product, and there is €“ and we are seeing very good demand for the product at this point in time. In addition we are launching EDW, everyday weed in Colorado this month or end of this month, early next month. And essentially that is a product where you can make your own €“ roll your own pre-rolls on ground flower.

And it’s a very unique product that is not available in the marketplace today in our two states, and we are anxious to see how it performs. We expect it to go really well. And this is all part of a multi-year program, as I mentioned before, and so we are pretty happy with the progress to date.

Joanne Jobin: Okay. Thank you, Nirup. Okay. We are going to swing over to finance now. Forrest, this is a question very much for you regarding cash flow and EBITDA?

Forrest Hoffmaster: Yes. EBITDA, thank you Joanne. EBITDA certainly had a strong year. Finished the year with $52 million in EBITDA and 33% on the bottom-line, so much improved over €“ year-over-year, and adding more efficient acquisitions with €“ through the year. In terms of cash, we ended the year with $38 million, so ended strong. We’re generating or generated $11.4 million in operating cash flow at the end of the year which is $3 million over last year, after considerable spending on acquisitions and CapEx and also satisfying existing debt and tax obligations. Our balance sheet remains strong. This is obviously a big topic for the industry. It’s a big topic for us. We’re looking at it daily. We have ample liquidity, good working capital to pursue the strategy, and they’re also aggressively improving ways we can operate and support scale through cost takeout measures and some of the synergies that we have as well as accelerating the integrations of future acquisitions.

So right now we’re focused on delivering positive cash flow, net of the acquisition costs for the year while driving organic growth and yes, continuing to reinvest that back into the business.

Joanne Jobin: Thank you, Forrest. Can you continue on and talk a little bit about cost controls and what you’re doing to tease out a little bit more in your cost control systems?

Forrest Hoffmaster: Sure. Thank you. I think I should just start with the strength of the team that we have here in the organization. Just deeply experiencing retail, manufacturing, cannabis, they know how €“ they know where the levers are and they know how to operate in challenging environments. So just really top to bottom focused on retail efficiencies, all the retail playbook aspects of operating a solid retail business unit from labor and product cost management. Making sure that we’re creating an excellent customer experience and then focused on passing through cost efficiencies and the improvements in our cultivation and manufacturing facilities. So a lot of expertise there, working on making sure that we’re continuously improving costs and passing that through, and then making sure that we’re improving the SG&A in the business.

So constantly looking at how we’re supporting both states where our sale or where our G&A is going and how we’re using it, and where we can find more efficiencies. And then lastly, just working on how we’re accelerating. I think I mentioned this earlier, the integration of future acquisitions, making sure we’re getting them to profitability faster and creating the synergies that we need to make them successful.

Unidentified Analyst : Thank you. And Forrest, how about a comment on your debt position right now?

Forrest Hoffmaster: Yes, strong balance sheet, debt-to-equity ratio is 1.4, debt-to-EBITDA is 1.7. Again, mention liquidity we’re strong on liquidity and working capital, generating operating cash from operations. We’re very aware of our interest and principle obligations in the out year, and our intention is to improve cash position, deploy it wisely to continue to meet those debt obligations.

Unidentified Analyst : Thank you. Just one more question here regarding refinancing possibilities for your debt. Will you be using positive cash flow generation to be paying off some of the debt to lower the large payments due in 2025?

Forrest Hoffmaster: Yes, that’s our plan. Right now as we all know, not necessarily the environment to go to the market and look for financing. So, our whole focus right now is generating free cash flow from operations and making sure we’re satisfying our obligations.

Unidentified Analyst : Okay. And one more question Forrest regarding guidance for the year, and why you did not provide guidance for 2023.

Forrest Hoffmaster: Yes, it’s a good question. I know we’re seeing mixed approaches to this. I think for us we’ve had a successful quarter, we’ve had a successful year, that’s where our focus is, is on growing the strength of the business managing what is in within our control, certainly hitting the performance side of things, but also creating long-term value. So that’s where our attention is right now, core business, generating free cash flow, successful execution of our M&A plan, and we’ll revisit whether or not we’re going to provide forward-looking guidance in second quarter earnings.

Unidentified Analyst : Thank you, Forrest. Let’s bring Justin back in the mix here. Justin, can you talk about your M&A activity and what are the plans in 2023 and going forward?

Justin Dye: Yes, thank you, Joe. Appreciate you asking me a question. These guys have all the answers and

Unidentified Analyst : They’re hogging your way.

Justin Dye: No. The team had a great year, great quarter, so congratulations to

Unidentified Analyst : Absolutely.

Justin Dye: Nirup, and Forrest, and Nancy and the whole team. But, I think, we’ve talked a lot about this with our investors and nothing has changed. We are going to continue to focus on core markets. We’re operating in Colorado, we continue to see a very fertile landscape here to continue to grow within the cities and the counties where we serve as customers today, as well as extending that coverage into new counties and new cities. And to remind you, there is still well over 650 recreational dispensaries in the state, and we occupy just a few. So we still see a tremendous opportunity of really good real estate out there that we can acquire. And frankly, there is some opportunities to develop some new locations, and we’re going to continue to work there.

And then New Mexico, we’re very, very pleased with New Mexico. And what we’re really proud of is the team down there is leveraging our size, and scale and our expertise around retailing and merchandising to drive our new stores and to become the retailer of choice with really great products and driving efficiencies to create products on the shelf that are valuable that have a really good value for our customers granting great service. So we’re opening stores and very quickly we’re winning, and we’re taking €“ the customers are coming to do business with us, and that’s important. So you’re going to continue to see us on the M&A actively, we need to fill in those states. We still see lots and lots to runway within those two states. And as we’ve discussed with all of you, our goal is to be number one in those states from a retail perspective with great retail , with great product brands that Nirup highlighted that we’re bringing in new products in the different product categories that solve a need for customers.

And we’re excited about that. So building product brands behind our retail powerhouse is a winning formula, and you’re going to continue to see us do that and continue to work with wholesale customers, getting to leverage that size and scale when making products accessible for those other retailers out there to offer them to their customers as well. So we’re going to keep working there. We’ll keep our eyes up on the landscape for other states, sort of in our region here as we continue to focus on being a regional operator. But we like having that determination, focus and focusing our capital there. We’re finding lots of really interesting opportunities on retail, wholesale and on the product side. From the acquisition standpoint, I can tell you we’re busier than we’ve ever been.

On the M&A front, we’re being very discerning in how we’re using our cash and capital. And there are some really great brands and up there. So we’re going to continue to look at that. So I think we’re very bullish about our opportunities in both of these states and looking at other states down the road as well. And once again, we won’t dip our toe in the water, we’ll look for a platform where we can be number one in the next state down the road. And we’re sticking to our strategy and executing the plan. And I think you’re seeing that in terms of the margin, the gross margin is up almost 7.5% from last year. And I think you’ll continue the efficiencies that we can wrench out and continue to drive volume. So, you are going to see more and more of those types of opportunities.

Unidentified Analyst : Thank you, Justin. And keeping on with the M&A activity, looking at the bigger picture, looking on the horizon, which is the question that we always get, where do you expect to be in the next three to five years? And is there a buyout in the works or could there be a buyout in the works?

Justin Dye: Well, I think since we’ve been in this €“ we invested in this business in June of 2019, and many of the executives and management team have been here, and we set out to really win and take care of customers in Colorado, and then that branched out into New Mexico. We have put ourselves in a position that we wanted to. So we’re generating free cash flow from operations, which allows us to put more cash on the balance sheet, allows us to have the ability to pay down debt if and when we want to be able to do that, it allows us to have a war chest to use some cash in acquisitions when and where we need to do that. And creates unbelievable flexibility for us. So, we have the opportunity to continue to do what we’re doing, which is grow within our states, perhaps get into another state or two down the road, or to acquire something much larger or wait for safe banking or capital markets provision, where we could perhaps even be listed in a couple of different exchanges, whether it be the NASDAQ or something along those lines that would allow us to have a larger population of retail shareholders and allow us to tap into that and be able to tap into the institutional investor base.

So we’ve got optionality, which is good for our shareholders. Certainly equity markets are challenged right now with cannabis, with a number of the cannabis investors running for the sidelines after safe banking didn’t pass in December. So we’re in great shape. We’re in great shape. We have, right now, we control our destiny and there’s a lot of companies that don’t. And I think that as we threw this will come out of this capital vacuum, so to speak, on the debt and the equity side. And we’re going to come out very, very strong. And I think these things happen quickly and I think we’ll see €“ we’ll be more appreciated in terms of share price. And the good thing is we’ve got lots of choices and what we’re doing is resonating with our customers and the big thing is with our customers, our retail customers, our medical patients, and our wholesale customers.

And as long as we’re winning with them and we’re generating free cash flow and we’re growing, we really have a lot of flexibility. So we’re setting very, very well, really proud of the team. Nirup has done a heck of a job leading operations, leading the business. We’re excited to have Forrest on board, Ken Diehl, that’s running New Mexico, Collin Lodge that’s running Colorado, the team’s running wholesale and on the M&A side, I think the team’s done a really good job. So I think we’re set up really well.

Joanne Jobin: Thank you. All right. We are almost at the top of the hour. We’re going to be wrapping it up very soon. One more question. This is for Nirup or Forrest. Can you comment further on the impairment of goodwill and the impact on your P&L?

Nirup Krishnamurthy: Okay, Joanne, I’ll take that and Forrest, you can chime in if needed, as we looked at all our operations, one of the decisions we made was to I guess focus more on our core business and less on the non-core businesses, which is basically the consulting business, our success nutrients business, and our Big Tomato business, which is essentially is a supply kind of system for cultivation. And as part of that we decided to take write downs on our goodwill, on our balance sheet to really focus going forward on our core businesses. So that essentially is the main reason for the impairments you’ll see in our results. So it did not have a material impact on our P&L or EBITDA was just fine. I think it is more of a net income exercise and a balance sheet adjustment.

Joanne Jobin: Forrest, do you have anything to add?

Forrest Hoffmaster: No, I think it was just that when you look at the retail segment of overall operations, I think retail sales were at about 89% in total. And so this was just the opportunity to look at where we were with some of the other areas of the business that needed to be looked at a little harder. And so we’re turning all the attention to the retail cultivation manufacturing side of the business. And I think Big Tomato and Success Nutrients is just reflective of what’s happening in the overall cultivation market. It’s our non-cannabis wholesale area. And so yes, just as Nirup said, it took the area to look at that right off the practice and move ahead with a clear balance sheet that reflects our future operations.

Joanne Jobin: Thank you, Forrest. And I’m just going to quickly take a few online questions here, and before we wrap it up. We’re getting a lot of questions about the Colorado cannabis market and the pressure it’s been under and perhaps the gentleman can give some color on your current view of the cannabis market in Colorado and where it’s going?

Nirup Krishnamurthy: Okay, I’ll take that. In a Colorado market, as I mentioned in the prepared remarks is seeing pricing pressure both on the wholesale side, which obviously has affected retail pricing in other competitors. So we’ve had to match that. And you will see that a bulk of our year-over-year shortfall in revenue last year was due to pricing and not due to volume. So, we are selling our sell through rates have been very strong in terms of units sold. And so it is primarily come down to oversupply of flower in the market. And so what we are seeing recently though is that a bunch of cultivation farms are starting to shut down. The number of licenses has come down 9% in the last few months. And where we expect the €“ sort of the market to bounce back in a period of time, but I just think it’s going to take some time for the market to come back as the inventory kind of flushes out through the system.

And I think it’s going to take most of this year to flush that out. But I do believe long-term Colorado is going to €“ is a pretty healthy market. We got high volumes and once we go through this cycle and we get out of this over supply, I think the market’s going to come back steady and strong over the next several years. So that’s the way we look at it. And having said that I also believe we are seeing the market rates, on flowers starting to steady out a little bit. These are rates published by the state and while I see pressure continuing this year I see long-term the market coming back.

Joanne Jobin: Thank you. All right. So that’s about all the questions we have for today, or we have time to answer today. We are at the top of the hour. Justin, do you have any final remarks before we do end the call?

Justin Dye: Yes, I do. I would thank all of our customers, and shareholders, our team members. Now this tough business requires retailing in the cannabis industry taking care of the customer patients is top of mind today in Colorado team members. And I’m really proud of the team. We think we had a great year last year in really tough conditions in Colorado, New Mexico is really the system there is being built as we go. And our team has done a good job at navigating that and really making sure we stay compliant and really advancing safety and compliance for the entire industry in both of our states, which is very, very important for the industry. And we’ll remain optimistic for future regulation and perhaps some federal help.

But in the meantime, we’re in great shape to continue to thrive until we get that. And I just appreciate everybody hanging in there. It’s a tough time from a capital market standpoint and shareholders appreciate our team, retain with us, and I think there’ll be good times ahead of us. So thank you and thanks Jo for facilitating, and we’ll look forward to talking with all of you soon. Thanks a lot.

Joanne Jobin: Thank you, Justin, and thank you, Nirup and Forrest. I would like to remind everyone that this webcast is available on the Schwazze website. And once again, thank you everyone for joining us this afternoon for the Schwazze quarterly webcast.