Margin Pressures, Competition Drive Schwazze’s Q3 Loss

Colorado-based Medicine Man Technologies (OTCQX: SHWZ) (Cboe: SHW), which operates as Schwazze, posted a net loss of $322,462 on revenue of $46.7 million for the third quarter ended Sept. 30.

Despite the 8% year-over-year revenue increase, the cannabis operator faced margin pressures and a competitive market, particularly in New Mexico, a key market for Schwazze. The net loss was a sharp shift from net income of $1.8 million in the third quarter of 2022.

The company’s expansion, marked by new store openings and an increased wholesale footprint, primarily fueled the revenue growth.

“When looking at wholesale penetration, Schwazze now sells into seven of the 10 largest operators in Colorado and New Mexico with its expanding product portfolio,” CEO Nirup Krishnamurthy said in a statement.

Krishnamurthy added, “While legal cannabis sales in (New Mexico) were up 19% year-over-year in Q3, total store count was up 76%, leading to lower revenue on a per-store basis. In response to these market dynamics, we are strategically investing in the retail experience and remain committed to attracting and retaining our customers and patients there.”

Gross profit stood at $21.4 million, or 45.9% of total revenue, a dip from 52% in the same quarter last year. The company attributed this decline to increased costs associated with recent acquisitions and a shift in the sales mix toward lower-margin medical products.

Operating expenses rose to $12.5 million, up from $11.4 million last year, reflecting costs associated with operating 28 additional stores in Colorado and New Mexico.

The Denver-based company posted an operating income of $8.9 million, down from $11.1 million in the same period last year.

Adjusted EBITDA was $14.1 million, or 30.2% of revenue, compared to $15.9 million, or 36.7% of revenue, last year. The company’s financial position also showed a decrease in cash and cash equivalents to $19.6 million from $38.9 million at the end of 2022, while total debt increased to $155.1 million.

Schwazze has been actively expanding its retail presence, launching Colorado’s first “store-within-a-store” concept and opening new dispensaries under the R. Greenleaf banner in New Mexico. The company’s ecommerce transactions and customer loyalty memberships showed growth in the quarter.

CFO Forrest Hoffmaster noted that the company is working to optimize its inventory through an ERP implementation, which is expected to lead to inventory valuation adjustments by year-end.

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