MariMed Inc. (PNK:MRMD) Q1 2024 Earnings Call Transcript

MariMed Inc. (PNK:MRMD) Q1 2024 Earnings Call Transcript May 9, 2024

MariMed Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning. My name is Alan and I'll be your conference operator today. At this time, I would like to welcome everyone to the MariMed, Inc. First Quarter 2024 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]. Thank you. I will now turn the line 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 first quarter 2024 earnings call. Joining me today are Jon Levine, our Chief Executive Officer; Tim Shaw, our Chief Operating Officer; and Ryan Crandall, our Chief Revenue 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 is contained in the Risk Factors section of our 10-K, which is 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, which are reconciled in our earnings release. Finally, our second quarter 2024 earnings release is tentatively scheduled to be issued after the markets close on August 7, 2024, and our Analyst Call is tentatively scheduled to be held on the morning of August 8, 2024, at 8:00 a.m. I will now turn the call over to Jon.

A close-up shot of a cannabis plant, showing its intricate details.

Jon Levine: Thank you, Steve. Good morning, everyone. With the first quarter now in the books, I am pleased to say we are on track with our strategic plan and annual financial targets we shared on our last call. The highlight of the quarter was undoubtedly the tremendous growth in our wholesale business, where we continue to grow significantly faster than the industry in all of our wholesale markets. At retail, I'm pleased but I am not satisfied. According to Headset data, we outperformed our competition in every state in which we operate, including Illinois. At the same time, our retail sales were not immune to the macro factors that hurt the entire industry, such as increased competition, lower discretionary spending, and seasonality.

In aggregate, MariMed again outpaced the overall industry in terms of revenue growth in both wholesale and retail channels. Let me quickly highlight a few of the key achievements this past quarter. We commenced wholesale operations at scale in Illinois. Our branded products are now widely accessible throughout the state and sales are ramping well. Additionally, we acquired our second adult use dispensary in Maryland, which we expect to open later this year. And after the end of the quarter, we announced the transfer of the dispensary license in Casey, Illinois. Moving forward, we will reflect 100% of the P&L on our financial versus management fees. We are off to a fast start in 2024, due to the groundwork we laid over the past couple of years, and we should continue to reap the benefits for the foreseeable future.

That concludes our first quarter recap. With that, I turn the call over to Ryan, who is joining us for his very first earnings call for our sales update.

Ryan Crandall: Thank you, Jon, and good morning, everyone. I'm excited to take part in today's earnings call. I'd like to start with a quick recap of first quarter results. As Jon said, our big story of the quarter continued to be the fantastic growth of our wholesale business. I'm very proud of our sales, marketing, and operation teams across the country. I don't say this lightly, but I strongly believe we have the best people in the business. In Q1, we reported wholesale revenue of $14.5 million, which represents an increase of 40% year-over-year. Maryland continues to expand as we jollied our fifth consecutive quarter of at least 25% year-over-year growth. We have gotten off to a great start in Illinois where our products are now available in 135 dispensaries.

Initial feedback indicates that Betty's, Bubby's and InHouse brands are all winners with room to grow in the Illinois market. Our Massachusetts wholesale business continues to take market share, reporting its sixth consecutive quarter of year-over-year growth. At a time when increased competition and pricing pressure persists, we are bucking the trend and executing with great teams and high quality brands and products. On the retail side of our business, in Q1, we reported sales of $22.4 million, which declined 4% versus the first quarter of 2023. We noted significant growth in Maryland and Massachusetts, driven by adult use in new dispensaries, respectively. However, as we guided this growth was offset by same-store sales in Illinois. Before I close, I want to give a shout out to Tim Shaw and his team for putting our company in a position to win every day.

The level of professionalism, passion and enthusiasm of his team is contagious and sets the tone for our overall company. Tim, thank you and your team for a great first quarter. With that, I will turn the call over to Tim for his operations update.

Tim Shaw: Good morning, everyone, and thanks, Ryan. Not bad for an earnings call Ricky [ph] and on behalf of everyone on the ops team, you're welcome. We are all excited to see our sales continue to grow as we go-forward. In operations, we've been hyper-focused on construction to get production operational as quickly as possible. For example, new processing facility in Illinois is in full operations mode after a few short months since it opened in December, and our cultivation facility projects in Illinois and Maryland, as well as our processing kitchen in Missouri are on track to be operational this year. As you may have noticed on the balance sheet, the ramping of Illinois processing facilities and the system-wide evolution of the Vibations grant both contributed to higher inventory levels.

We view this as a short-term impact through 2024, and we will likely see further increases due to higher flower inventory as we complete our cultivation facility in Illinois and our cultivation expansion in Maryland. Just another example of what it means for us to be in our growth cycle, one that is very similar to what our MSO peers experienced during the past few years ahead of their maturity. We also completed and moved into our new permanent dispensary in Casey, Illinois. Having a beautiful building for our customers has already led to increased sales. In Quincy, Massachusetts, we completed the expansion of our dispensary. The added retail space will help us deliver an even better customer experience when recreational sales begin. We expect that to happen very soon.

On the production front, I can't tell you how proud I am with my traveling production team, a group of all stars who spent weeks on the road last quarter to train our new Illinois employees to meet our exacting standards for the quality and consistency we expect in all markets. That significant investment in people and attention to detail has always been the basis for the production of our quality award winning brands, which keeps consumers coming back to buy more. In fact, our brand recently won seven more awards at the Maryland Leaf Cannabis Award Ceremony. Creating and producing great products is only half the battle. Marketing them and generating awareness is the other. Last month, we kicked off a landmark music sponsorship in Boston. Nature's Heritage is officially the exclusive cannabis sponsor of the iconic MGM Music Hall and House of Blues.

The first time either venue has worked with the cannabis brand, and the initial feedback from Consejo and the industry has been extremely positive. We also just completed a strategic overhaul of our retail marketing efforts, utilizing sophisticated software to track the cannabis consumers' journey to and from our dispensaries. You can now tell if a customer who has seen our marketing actually makes a purchase in our stores. Our tech stack making our marketing spend smarter and more efficient. Our marketing and tech teams deserve huge props for the effort that went into building it. Virtually everyone has experienced decline average checks since the pandemic and we haven't been immune to that challenge. But like usual, we found a way to offset it and in doing so, we are able to increase the number of daily transactions across all of our markets.

With less discretionary dollars to go around, it is imperative we continue our scrappiness and find unique and innovative ways to drive traffic to our dispensaries and continue to grow our market share. And that concludes my operational review. I will now turn the call over to Steve for our financial review.

Steve West: Thank you, Tim. Our first quarter revenue was approximately $37.9 million, which was up 10% year-over-year and was driven by very strong growth in our wholesale business. First quarter non-GAAP adjusted gross margin was 43.8%. Our gross margin declined versus our Q1 2023 gross margins due to higher input costs and pricing pressure. We reported adjusted EBITDA of $4.7 million, which was a decline versus our Q1 2023, adjusted EBITDA. The year-over-year decline was due primarily to our gross margin decline, increased labor associated with new asset openings and carrying costs for new facilities that are still ramping. Turning to the balance sheet and cash flow. We ended the first quarter with $15.2 million of cash and equivalents, which increased 4% versus our 2023 year-end cash balance of $14.6 million.

Our working capital continues to be a strength for the company was $19.4 million and cash flow from operations during the quarter was $3.2 million and we spent $3.4 million in CapEx, essentially positioning MariMed as a self-funded growth company. Before moving to our financial targets and passing the call to Jon, I want to add some color on Tim's inventory discussion. We ended the quarter with a higher ratio of inventory to sales than normal. MariMed has traditionally carried one of the lowest inventory levels in the industry because of our financial discipline and focus on inventory management. We expect this inventory ratio to remain relatively high shorter-term, but should come down naturally as we sell-through the Illinois wholesale build and flower sales from the new and expanded cultivation facilities.

Now, moving to our 2024 outlook. As we reported last night, we are maintaining our full year 2024 financial targets of 5% to 7% revenue growth, 0% to 2% adjusted EBITDA growth, and approximately $10 million in CapEx. That concludes our financial review. I will now turn the call back over to Jon for his concluding remarks.

Jon Levine: Thanks, Steve. Let me begin my closing with a big shout out to the DEA, which intends to reclassify cannabis to a Schedule III Controlled Substances. We have been advocating for this over the past couple of years, even reenacting the Boston Tea Party last summer to bring attention to the unfair 280E tax burden on all cannabis companies. We are thrilled that the elimination of 280E appears to be on the horizon. For us, it would result in millions of dollars in tax savings annually, further strengthening our balance sheet and giving us capital to execute our growth strategy. Moving on, I'm pleased with MariMed's performance this quarter, and continue to outpace our peers with respect to revenue growth. We remain focused on executing our strategic plan.

MariMed still has one of the most conservative balance sheets in the industry. We have access to arguably the lowest cost of capital in the industry. Our new assets are ramping and growing revenue every quarter and will soon start growing profits associated with a maturing company. In fact, we are already seeing the positive impact in Illinois as our retail gross margins improved 130 basis points versus last year having finally become fully vertical there. We continue to report stronger growth in our core states, and the combination of revenue growth and declining investments will lead to margin expansion and increased cash flow generation. Our brands continue to pile up awards at both a local and national level. At the end of the day, powerful brands that consumers trust are what the industry is all about.

MariMed is not the biggest, but pound for pound in my humble opinion, there is no other cannabis company on the planet with the amazing brand portfolio MariMed has. We have a motivated sales force with selling power in all our markets because our brands like Betty's Eddies and Nature's Heritage are in such high demand. When the regulatory walls finally come down, and they will, institutional and corporate investors will come into the space looking for investment ideas. Some will surely look for the biggest companies, but I believe the long-term investor will look for the best brand with the best growth potential to partner with, and I'm 100% confident MariMed will be at the front of that line. If you listened to our calls before, you know, I like to use fourth analogies to paint a picture of where MariMed is.

Well, the NBA playoff is in full swing. I'm watching Oklahoma City, Minnesota, and yet, even the Knicks, very closely. Like MariMed, these teams are enjoying success even while their best days are still ahead of them. They are all in their growth phase, laying a foundation for a very bright future. So yes, I'm very bullish on the future of MariMed to maintain our growth profile for the foreseeable future. With that, I'd like to thank our employees for their hard work and dedication to helping MariMed achieve our mission to improve the lives of people every day. Operator, you may open the line for questions.

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