The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included herein and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , as filed with theSEC . In addition to our historical unaudited condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in Part II, Item 1A, "Risk Factors." See also, "CAUTIONARY NOTE ABOUT FORWARD-LOOKING INFORMATION."
COMPANY OVERVIEW
Established in 2014 and headquartered inDenver, Colorado ,Medicine Man Technologies, Inc. , is a cannabis consumer packaged goods company and retailer. The Company's focus is on building the premier, vertically integrated cannabis company by taking operating systems to other states where it can develop a differentiated leadership position. The Company is anchored by a high-performance culture that combines customer-centric thinking and data science to test, measure, and drive decisions and outcomes. The Company currently operates inColorado andNew Mexico .
Results of Operations – Consolidated
The following table sets forth the Company's selected consolidated financial results for the periods, and as of the dates, indicated. The (i) consolidated statements of operations for the three and nine months endedSeptember 30, 2022 andSeptember 30, 2021 and (ii) consolidated balance sheet as ofSeptember 30, 2022 andDecember 31, 2021 have been derived from and should be read in conjunction with the consolidated financial statements and accompanying notes presented in this report. The Company's consolidated financial statements have been prepared in accordance with GAAP and on a going-concern basis that contemplates continuity of operations and realization of assets and liquidation of liabilities in ordinary course of business. Revenue segments The Company has consolidated financial statements across its operating businesses with operating segments of retail, wholesale and other. The Company also accounts for revenue by state within the operating segments of retail, wholesale, and other for theState of Colorado and theState of New Mexico , each of which are reported below.
OPERATING REVENUE BY SEGMENT
For the Three Months Ended September 30, 2022 vs 2021
2022 2021 $ %
Retail $ 39,759,734 $ 20,741,864 $ 19,017,870 92 %
Wholesale 3,335,252 11,022,519 $ (7,687,267) (70) %
Other 96,000 70,922 $ 25,078 35 %
Total revenue $ 43,190,986 $ 31,835,305 $ 11,355,681 36 %
For the Nine Months Ended September 30,
2022 versus 2021
2022 2021 $ %
Retail $ 104,386,464 $ 54,083,880 $ 50,302,584 93 %
Wholesale 14,661,268 27,654,965 $ (12,993,697) (47) %
Other 184,200 165,416 $ 18,784 11 %
Total revenue $ 119,231,932 $ 81,904,261 $ 37,327,671 46 %
32
Table of Contents
REVENUE OF OPERATION BY STATE
For the Three Months Ended September 30, 2022 vs 2021
2022 2021 $ %
Colorado $ 30,953,225 $ 31,835,305 $ (882,080) (3) %
New Mexico 12,237,761 - $ 12,237,761 ***
Total revenue $ 43,190,986 $ 31,835,305 $ 11,355,681 36 %
For the Nine Months Ended September 30, 2022 vs 2021
2022 2021 $ %
Colorado $ 90,986,990 $ 81,904,261 $ 9,082,729 11 %
New Mexico 28,244,942 - $
28,244,942 *** Total revenue $119,231,932
Revenues forColorado andNew Mexico for the three months endedSeptember 30, 2022 , totaled$30,953,225 and$12,237,761 , respectively. Revenue forColorado for the three months endedSeptember 30, 2022 decreased by$882,080 , or 3% compared to the prior period. Revenues forNew Mexico for the three months endedSeptember 30, 2022 increased$12,237,761 compared to the prior period, as the Company purchased theNew Mexico business in the first quarter of 2022. For the three months endedSeptember 30, 2022 ,Colorado andNew Mexico represented 72% and 28%, respectively, of the Company's total revenue. Revenues forColorado andNew Mexico for the nine months endedSeptember 30, 2022 , totaled$90,986,990 and$28,244,942 , respectively. Revenue forColorado for the nine months endedSeptember 30, 2022 increased by$9,082,729 , or 11% compared to the prior period. Revenues forNew Mexico for the nine months endedSeptember 30, 2022 increased$28,244,942 compared to the prior period, as the Company purchased theNew Mexico business in the first quarter of 2022. For the nine months endedSeptember 30, 2022 ,Colorado andNew Mexico represented 76% and 24%, respectively, of the Company's total revenue. For the Three Months Ended September 30, 2022 vs 2021 2022 2021 $ % Total revenue$ 43,190,986 $ 31,835,305 $ 11,355,681 36 %
Total cost of goods and services 17,226,451 16,779,313
447,138 3 % Gross profit 25,964,535 15,055,992 10,908,543 72 % Total operating expenses 14,849,677 11,218,992 3,630,685 32 % Income (loss) from operations 11,114,858 3,837,000 7,277,858 190 % Total other income (expense) (3,712,108) (1,555,427) (2,156,681) 139 % Provision for income taxes (benefit) 5,593,513 1,312,817 4,280,696 326 % Net income (loss)$ 1,809,237 $ 968,756 $ 840,481 87 % Earnings (loss) per share attributable to common shareholders - basic$ 0.00 $ 0.02 $ (0.02) (98) % Earnings (loss) per share attributable to common shareholders - diluted$ 0.00 $ 0.02 $ (0.02) (99) % Weighted average number of shares outstanding - basic 51,232,943 44,145,709 Weighted average number of shares outstanding - diluted 137,954,532 44,145,709 33 Table of Contents
Quarter ended
Revenue
Revenues for the three months endedSeptember 30, 2022 totaled$43,190,986 , including (i) retail sales of$39,759,734 (ii) wholesale sales of$3,335,252 and (iii) other operating revenues of$96,000 , compared to revenues of$31,835,305 , including (i) retail sales of$20,741,864 , (ii) wholesale sales of$11,022,519 , and (iii) other operating revenues of$70,922 during the three months endedSeptember 30, 2021 , representing an increase of$11,355,681 or 36%. The most influential factor driving revenue increases in the third quarter of 2022 as compared to the same period in 2021 is acquisition activity. Revenue for the quarter endedSeptember 30, 2022 included revenue from four consummated acquisitions inColorado and revenue from the Company's initial entrance into theNew Mexico market with the acquisition ofR. Greenleaf , which were not in revenue for the same period in 2021. Revenue from wholesale sales decreased, due in large part to continued pricing pressure in theColorado wholesale market as a result of supply saturation in flower and bulk distillate products.
Cost of goods and services
Cost of goods and services for the three months endedSeptember 30, 2022 totaled$17,226,451 compared to cost of goods and services of$16,779,313 during the three months endedSeptember 30, 2021 , representing an increase of$447,138 or 3%. Overall cost of goods and services increased due to the same acquisition activities that generated substantial increases in revenue, but the rate at which cost of goods and services increases from acquisition activity occurs at a lower rate than increases in revenue from acquisition activity due to lower wholesale flower pricing inColorado and substantial vertical integration inNew Mexico generating favorable cost savings.
Functionnary costs
Operating expenses for the three months endedSeptember 30, 2022 totaled$14,849,677 , compared to operating expenses of$11,218,992 during the three months endedSeptember 30, 2021 , representing an increase of$3,630,685 or 32%. This increase is due to increased selling, general and administrative expenses, professional service fees, salaries, benefits and related employment costs, all largely driven by growth from acquisitions.
Other income (expenses), net
Other expense, net for the three months endedSeptember 30, 2022 totaled$3,712,108 compared to$1,555,427 during the three months endedSeptember 30, 2021 , representing an increase in other expense of$2,156,681 or 139%. The increase in other expenses is due to higher interest payments due on the Company's debt obligations as a result of compounding interest with the passage of time and higher debt balances, which was partially offset this quarter by the revaluation of the derivative liability related to the Investor Notes issued inDecember 2021 that was recognized as income in the three months endedSeptember 30, 2022 . 34 Table of Contents Net Income (Loss)
Due to the factors mentioned above, we generated a net loss for the three months ended
For the Nine Months Ended
September 30, 2022 vs 2021
2022 2021 $ %
Total revenue $ 119,231,932 $ 81,904,261 $ 37,327,671 46 %
Total cost of goods and services 57,173,192 44,692,765
12,480,427 28 % Gross profit 62,058,740 37,211,496 24,847,244 67 % Total operating expenses 46,698,772 30,418,486 16,280,286 54 % Income (loss) from operations 15,359,968 6,793,010 8,566,958 126 % Total other income (expense) 4,770,919 (3,105,816) 7,876,735 (254) %
Provision for income taxes (benefit) 11,259,369 1,997,905 9,261,464 464 % Net income (loss)$ 8,871,518 $ 1,689,289 $ 7,182,229 425 % Earnings (loss) per share attributable to common shareholders - basic$ 0.07 $ 0.04 $ 0.03 80 % Earnings (loss) per share attributable to common shareholders - diluted$ 0.03 $ 0.03 $ (0.00) (13) % Weighted average number of shares outstanding - basic 50,615,437 42,903,008 Weighted average number of shares outstanding - diluted 137,337,027 56,688,640
Year to date
Revenue
Revenues for the nine months endedSeptember 30, 2022 totaled$119,231,932 , including (i) retail sales of$104,386,464 (ii) wholesale sales of$14,661,268 and (iii) other operating revenues of$184,200 , compared to revenues of$81,904,261 , including (i) retail sales of$54,083,880 , (ii) wholesale of$27,654,965 , and (iii) other operating revenues of$165,416 during the nine months endedSeptember 30, 2021 , representing an increase of$37,327,671 or 46%. The most influential factor driving revenue increases in the first nine months of 2022 as compared to the same period in 2021 is acquisition activity. Revenue for the nine months endedSeptember 30, 2022 included revenue from four new acquisitions inColorado , which included five new retail dispensaries, and revenue from the Company's initial entrance into theNew Mexico market with the acquisition ofR. Greenleaf that created an immediate initial portfolio of ten retail dispensaries across the state ofNew Mexico , none of which were in revenue for the same period in 2021.
Cost of goods and services
Cost of goods and services for the nine months endedSeptember 30, 2022 totaled$57,173,192 compared to cost of goods and services of$44,692,765 during the nine months endedSeptember 30, 2021 , representing an increase of$12,480,427 or 28%. Year to date cost of goods and services in 2022 increased as compared to 2021 due to the same acquisition activities that generated substantial increases in revenue, but the rate at which cost of goods and services increases from acquisition activity occurs at a lower rate than increases in revenue from acquisition activity due to lower wholesale flower pricing inColorado and substantial vertical integration inNew Mexico generating favorable cost savings.
Functionnary costs
Operating expenses for the nine months endedSeptember 30, 2022 totaled$46,698,772 , compared to operating expenses of$30,418,486 during the nine months endedSeptember 30, 2021 , representing an increase of$16,280,286 or 54%. This increase is due to increased selling, general and administrative expenses, professional service fees, salaries, benefits and related employment costs, all largely driven by growth from acquisitions. 35 Table of Contents Other Income (Expense), Net Other income, net for the nine months endedSeptember 30, 2022 totaled$4,770,919 compared to other expenses, net, of ($3,105,816 ) during the nine months endedSeptember 30, 2021 , representing an increase in income of$7,876,735 or (254)%. The increase in other income, net is primarily due to significant gains recognized in connection with revaluation of the derivative liability related to the Investor Notes for the nine months endedSeptember 30, 2022 , partially offset by higher interest payments due on the Company's debt obligations as a result of compounding interest with the passage of time and higher debt balances. Net Income (Loss)
Due to the factors mentioned above, we generated net profit for the nine months ended
RESULTS OF OPERATIONS AND KEY PERFORMANCE INDICATORS
Revenue
The Company derives its revenue from three revenue streams: (i) Retail, which sells finished goods sourced internally and externally to the end consumer in retail stores; (ii) Wholesale, which is the cultivation of flower and biomass sold internally and externally and the manufacturing of biomass into distillate for integration into externally developed products, such as edibles and internally developed products such as vapes and cartridges under the Purplebee's brand; and (iii) Other, which includes other income and expenses, such as, licensing and consulting services, facility design services, facility management services, the Company's Three A Light™ publication, and corporate operations.
Gross profit
Gross profit is revenue less cost of goods sold. Cost of goods sold includes costs directly attributable to product sales and includes amounts paid for finished goods such as flower, edibles, and concentrates, as well as manufacturing and cultivation labor, packaging, supplies and overhead such as rent, utilities and other related costs. Cannabis costs are affected by market supply. Gross margin measures our gross profit as a percentage of revenue.
Total operating expenses
Total operating expenses other than the costs of goods sold consists of selling costs to support customer relations, marketing and branding activities. It also includes an investment in the corporate infrastructure required to support
the Company's ongoing business. Adjusted EBITDA Adjusted EBITDA is derived from Operating Income, which is adjusted for one-time expenses, merger and acquisition and capital raising costs, non-cash related compensation costs, and depreciation and amortization.
Average basket size
Average Basket Size is calculated based on the average dollar value of all total items purchased by a single customer during a single visit to one of the Company's retail dispensary stores. Management monitors and utilizes Average Basket Size to assess consumer preferences and behavior, effectiveness of consistent reward and discount offerings, and product performance. Management believes this metric can be useful to investors for a better understanding of average customer spend and revenue across all Company retail dispensaries.
36
Table of Contents
Recorded Customer Visits
The Recorded Customer Visits metric reports the number of customers that have
visited any of the Company's retail dispensary stores and made a purchase.
Customer visits are recorded at the time of purchase. If a customer makes
multiple purchases in a day, each purchase is counted as an individual visit.
Management uses Recorded Customer Visits to monitor and assess Company
performance in the markets where it operates, consumer acceptance of the
Company's brand and products, customer retention, and store traffic. Recorded
Customer Visits is a useful non-financial metric for investors to contextualize
the Company's assessment of overall market performance and consumer appetite for
cannabis products.
Same-store sales and stacked IDs
The Company utilizes Same Store Sales and Stacked Identical Store Sales
("Stacked IDs") to evaluate and monitor organic growth from existing
dispensaries. Management believes these metrics are useful for investors to
assess management of our retail stores and to distinguish revenue and growth
from operations from revenue and growth from acquisitions. Same Store Sales and
Stacked IDs are both expressed as a percentage that indicates the relative
increase or decrease to revenue for certain retail stores from the relevant
previous reporting period, which are reported separately for retail operations
in Colorado and New Mexico . Same Store Sales is calculated by comparing revenue
from sales for all dispensaries in existence for more than one year against the
revenue from the sales for the same dispensaries for a specified previous
period. Stacked IDs, which is derived from Same Store Sales, reflects Same Store
Sales as adjusted for dating discrepancies to report comparable sales for the
identical period of days for a specified previous period.
CASH AND CAPITAL RESOURCES
As ofSeptember 30, 2022 andDecember 31, 2021 , the Company had total current liabilities of$30,041,901 and$45,263,179 , respectively. The decrease is driven by the revaluation of the derivative liability associated with the Investor Notes. As ofSeptember 30, 2022 andDecember 31, 2021 , the Company had cash and cash equivalents of$38,725,187 and$106,400,216 , respectively to meet its current obligations. The Company had working capital of$41,548,525 as ofSeptember 30, 2022 , a decrease of$37,594,104 as compared toDecember 31, 2021 . The reduction in cash, and in turn working capital, is primarily driven by expenditure of cash to fund acquisitions and operations. The Company is an early-stage growth company, generating cash from operational revenue and capital raises. Cash is being reserved primarily for capital expenditures, facility improvements, acquisitions, and strategic investment opportunities. The Company predominantly relies on internal capital that is generated through revenue and any other internal sources of liquidity to meet its short-term and certain long-term capital demands. Management believes the Company's current projected growth, revenue from consummated acquisitions, and revenue from operations will be sufficient to meet its current obligations as they become due. The Company relies on a combination of internal and external capital to meet its long-term obligations, with internal liquidity sourced from revenue from operations and external financing acquired from various sources, including commercial loan arrangements, capital raises and private placement transactions, and cash from the Investor Notes. Management believes this combination of internal revenue and external liquidity will be sufficient to meet the Company's long-term obligations; however, it is possible the Company will seek additional external financing to meet capital needs in the future. The Company maintains the unused portion of the funds received from the Investor Notes for future acquisitions and execution of strategic growth initiatives. Due to our participation in the cannabis industry and the regulatory framework governing cannabis inthe United States , our debt and loan arrangements are sometimes subject to higher interest rates than are market for other industries, which has an unfavorable impact on our liquidity and capital resources. Additionally, the cash requirements to service our debt obligations increase with the passage of time due to interest accrual, which increases constraints on our capital resources and tends to reduce liquidity in the amount of such accruals. We currently anticipate meeting these cash requirements from operating revenue and cash on hand. One of our strategic goals is to stimulate growth through acquisitions, which also tends to negatively impact liquidity during periods when we consummate an identified acquisition. We expect to continue executing this strategy in future periods, meeting such capital requirements in connection therewith from both internal capital and external financing (including unused funds from the Investor Notes), which will decrease liquidity. Additional factors or trends that have impacted or could potentially impact liquidity in future periods include general economic conditions such as market saturation, inflation, and general economic downturn. TheColorado cannabis
market has
37
Table of Contents
experienced downward pricing pressure from over-supply of certain cannabis products in the market, which has improved retail margins in current periods but will likely impact the relationship between cost and revenue if and/or when supply is decreased in theColorado market. Increasing inflation may also negatively impact our liquidity, as our cost of goods and services may increase without corresponding increases to revenue. Increasing inflation and general economic downturn inthe United States could also negatively impact revenue to the extent such factors affect consumer behavior.
Cash flow
Cash provided by (used in) operating, investing and financing activities
Net cash provided by (used in) operating, investing and financing activities for the periods ended
For the Periods
Ended
2022 2021
Net cash provided by (used in) operating activities
Net cash used in investing activities
(105,117,739) (75,644,398) Net cash provided by financing activities
41,399,973 90,761,874
The Company's cash used in operating activities for 2022 is predominantly driven by the gain on derivative liabilities from the Investor Note. The Company's use of cash from investing activities is driven by acquisition of businesses, cannabis licenses, and property, plant and equipment for existing entities such as store remodels. Our cash provided by financing activities is mainly from proceeds from our credit facility, the Investor Notes and the issuance of shares of Common Stock.
© Edgar Online, source
#MEDICINE #MAN #TECHNOLOGIES #Managements #Discussion #Analysis #Financial #Condition #Results #Operations #Form #10Q #MarketScreener