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Schwazze, Formerly Operating as Medicine Man Technologies, Inc., Provides Business Update and Announces Strong Third Quarter 2020 Financial Results

DENVER–(BUSINESS WIRE)–Nov 16, 2020–

Schwazze, formerly operating as Medicine Man Technologies Inc. (OTCQX:SHWZ) (“Schwazze ” or “the Company”), today provided a business update and announced strong financial results for its third quarter ended September 30, 2020.

Justin Dye, Chairman and Chief Executive Officer of Schwazze shared, “We are pleased with our progress in the third quarter. We continued to grow revenue and meaningfully narrow our net loss. Our third quarter performance demonstrates the team’s ability to implement our operating playbook and successfully integrate strategically attractive and accretive acquisitions such as Mesa Organics and Purplebee’s, which have proven to be an excellent strategic fit, into our operations.”

Dye continued, “We are eager to complete our acquisitions of Star Buds’ 14 Colorado locations during the fourth quarter. Star Buds is one of the most recognized and successful retail cannabis operators in North America. These acquisitions position us to become a cannabis leader in Colorado by combining their industry expertise with our best-in-class playbook. Together, we are creating the next era of cannabis that lowers the barrier of acceptance for mainstream America and accelerates innovation in health, happiness and quality of life for consumers.”

Business Update

  • On November 5, 2020, the Company announced that it has received satisfactory proof of funds acknowledgement from Star Buds in anticipation of closing the pending transactions. This acknowledgment enables companies to begin preparing for a fourth quarter 2020 closing of the acquisitions of 13 retail operations located throughout the Colorado front-range and one cultivation facility in Denver.

    Star Buds is one of the most recognized and successful retail cannabis operators in North America based on revenue-per-location and profit. Upon completion of this transaction, the Company will be one the first publicly traded companies with full seed to sale operations in Colorado consisting of 17 dispensaries, manufacturing, and cultivation.
    Based on the consolidated, unaudited 2019 results the Company received from Star Buds, these acquisitions collectively earned approximately $50M in revenue with a strong EBITDA margin.
    The proforma revenue for the combined companies for 2020 will be approximately $90M and the combined companies will be profitable and cash flow positive after the completion of the acquisition.

  • Star Buds is one of the most recognized and successful retail cannabis operators in North America based on revenue-per-location and profit. Upon completion of this transaction, the Company will be one the first publicly traded companies with full seed to sale operations in Colorado consisting of 17 dispensaries, manufacturing, and cultivation.
  • Based on the consolidated, unaudited 2019 results the Company received from Star Buds, these acquisitions collectively earned approximately $50M in revenue with a strong EBITDA margin.
  • The proforma revenue for the combined companies for 2020 will be approximately $90M and the combined companies will be profitable and cash flow positive after the completion of the acquisition.
  • Nirup Krishnamurthy has since assumed oversight of Schwazze’s business units including retail, manufacturing, cultivation, wholesale sales, and marketing to drive operational excellence throughout field operations. He has also continued to be responsible for the alignment and prioritization of the ongoing integration of the Company’s acquisitions and for driving technology innovation across the organization. Krishnamurthy joined Schwazze earlier this year, bringing more than 25 years of experience in operations, innovation, technology, integration and M&A at Fortune 500 companies including United Airlines, Northern Trust Bank and former grocery retailer The Great Atlantic & Pacific Tea Company (A&P).
  • Jeff Garwood is a recognized visionary business leader bringing 30 years of extensive experience across finance and operations to the Company and now serves on the Audit and Compensation Committees. He is the founder and the managing member of Liberation Capital, LLC, a private equity fund focused on providing modular, repeatable waste to value project finance, where he has been active with its investments for 10 years. Garwood is also the co-owner of Zysense, an entity providing high precision measurement instruments for research. Prior to Liberation Capital, he held a variety of senior leadership positions with General Electric, including President and CEO of GE Water and Process Technologies, President and CEO of GE Fanuc, and President of Garrett Aviation.

Cost of goods and services, consisting of expenses related to delivery of services and product procurement, was $4,648,910 during the three months ended September 30, 2020, as compared to $2,786,244 during the same period in 2019. This increase was due to increased sales of product.

Gross profit was $2,781,464 during the three months ended September 30, 2020 as compared to $2,552,625 during the same period in 2019, an increase of $228,839. Gross profit margin decreased to approximately 37% of revenue from nearly 48% of revenue during the same period in 2019. However, excluding the $1,782,457 in revenue awarded in litigation during the third quarter 2019, gross profit increased by $2,011,296, while gross profit margin increased by approximately 260 basis points, mostly driven by the strength of the Mesa Organics acquisition.

Total operating expenses were $6,400,290 during the three months ended September 30, 2020, as compared to operating expenses of $3,478,232 during the same period in 2019, an increase of $2,922,058. This increase was due to increased selling, general and administrative expenses, professional service fees, salaries, benefits and related employment costs and non-cash, stock-based compensation.

Total other income was $704,615 during the three months ended September 30, 2020 as compared to net other expenses of $902,371 during the same period in 2019. This represents an improvement of $1,606,986. The increase in other income, net was primarily due to an unrecognized loss on derivative liabilities and lower interest expense coupled with unrealized gain on investments.

Conference Call and Webcast Scheduled for Third Quarter 2020 Schwazze will host a conference call and webcast today at 4:30 p.m. ET.

Investors interested in participating in the conference call can dial 201-389-0879 or listen to the webcast from the Company’s “Investors” website at https://ir.schwazze.com. The webcast will later be archived as well.

Following their prepared remarks, Chief Executive Officer Justin Dye and Chief Financial Officer Nancy Huber will also answer investor questions. Investors may submit questions in advance or during the conference call itself through the weblink: http://public.viavid.com/index.php?id=141477. This weblink has also been posted to the Company’s “Investors” website.

About Schwazze Medicine Man Technologies, Inc. is now operating under its new trade name, Schwazze. Schwazze is executing its strategy to become a leading vertically integrated cannabis holding company with a portfolio consisting of top-tier licensed brands spanning cultivation, extraction, infused-product manufacturing, dispensary operations, consulting, and a nutrient line. Schwazze leadership includes Colorado cannabis leaders with proven expertise in product and business development as well as top-tier executives from Fortune 500 companies. As a leading platform for vertical integration, Schwazze is strengthening the operational efficiency of the cannabis industry in Colorado and beyond, promoting sustainable growth and increased access to capital, while delivering best-quality service and products to the end consumer. The corporate entity continues to be named Medicine Man Technologies, Inc.

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

MEDICINE MAN TECHNOLOGIES, INC.

CONDENSED BALANCE SHEET

Expressed in U.S. Dollars

September 30, 2020

December 31, 2019

(Unaudited)

Current assets

Cash and cash equivalents

11,853,627

Accounts receivable, net of allowance for doubtful accounts

Accounts receivable – related party

Notes receivable – related party

Prepaid expenses and other current assets

Prepaid acquisition costs (Note 11)

Total current assets

15,569,115

Non-current assets

Fixed assets, net of accumulated depreciation of $893,964 and $159,354, respectively

17,445,843

12,304,306

Intangible assets, net of accumulated amortization of $24,771 and $19,811, respectively

Investment

Accounts receivable – litigation

Deferred tax assets, net

Notes receivable – noncurrent, net

Operating lease right of use assets

Other assets

Total non-current assets

26,120,680

16,659,492

Total assets

32,696,633

32,228,607

Liabilities and Stockholders’ Equity

Current liabilities

Accounts payable

Accounts payable – related party

Accrued expenses

Derivative liabilities

Income taxes payable

Total current liabilities

Noncurrent liabilities

Lease liabilities

Total noncurrent liabilities

Total liabilities

Commitments and contingencies (Note 11)

Shareholders’ equity

Common stock $0.001 par value, 250,000,000 authorized, 42,194,878 shares issued and 41,762,146 shares outstanding at September 30, 2020, and 39,952,628 shares issued and outstanding at December 31, 2019.

Additional paid-in capital

60,714,343

50,356,469

Accumulated deficit

(33,705,705

(22,816,477

Common stock held in treasury, at cost, 432,732 shares held at September 30, 2020 and December 31, 2019.

(1,332,500

(1,000,000

Total shareholders’ equity

25,718,333

26,579,945

Total liabilities and stockholders’ equity

32,696,633

32,228,607

MEDICINE MAN TECHNOLOGIES, INC.

CONDENSED STATEMENT OF COMPREHENSIVE (LOSS) AND INCOME

For the Three and Nine Months Ended September 30, 2020 and 2019

Expressed in U.S. Dollars

Three Months Ended September 30,

Nine Months Ended September 30,

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Operating revenues:

Product sales, net

14,292,374

Product sales – related party, net

Consulting and licensing services

Litigation revenue

Other operating revenues

Total revenue

16,057,837

Cost of goods and services:

Cost of goods and services

Total cost of goods and services

Gross profit

Operating expenses:

Selling, general and administrative expenses

Professional services

Salaries, benefits and related expenses

Stock based compensation

Derivative expense – contingent compensation

Total operating expenses

20,233,567

15,125,299

Income from operations

(3,618,826

(14,079,861

(11,496,504

Other income (expense):

Gain on forfeiture of contingent consideration

Interest income (expense), net

Other income (expense)

Unrealized gain (loss) on derivative liabilities

Unrealized gain (loss) on investments

(1,458,037

Total other income (expense)

(2,065,942

Net income (loss)

(2,914,211

(1,827,978

(10,889,228

(13,562,446

Earnings (loss) per share attributable to common shareholders:

Basic and diluted earnings (loss) per share

Weighted average number of shares outstanding – basic and diluted

41,568,147

35,115,889

41,242,0411

31,136,392

Other comprehensive income (loss), net of tax

Total other comprehensive income (loss), net of tax

Comprehensive income (loss)

(2,914,211

(1,827,978

(10,889,228

(13,562,446

MEDICINE MAN TECHNOLOGIES, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

For the Nine months Ended September 30, 2020 and 2019

Expressed in U.S. Dollars

Common Stock

Additional Paid-in

Accumulated

Total Stockholders’

Balance, December 31, 2018

27,753,310

22,886,624

(5,840,735

17,073,764

Net income (loss)

(13,562,446

(13,562,446

Issuance of common stock in connection with sales made under private or public offerings

19,590,200

19,600,000

Issuance of common stock in connection with the exercise of common stock purchase warrants

Issuance of common stock as compensation to employees, officers and/or directors

Issuance of common stock in exchange for consulting, professional and other services

Stock based compensation expense related to common stock options

Balance, September 30, 2019

39,369,511

47,303,532

(19,403,181

27,939,841

Common Stock

Additional

Accumulated

Treasury Stock

Total Stockholders’

Balance at, December 31, 2019

39,952,628

50,356,469

(22,816,477

(1,000,000

26,579,945

Net income (loss)

(10,889,228

(10,889,228

Issuance of common stock as payment for Mesa

Return of common stock as compensation to employees, officers and/or directors

Issuance of common stock in connection with sales made under private or public offerings

Return of common stock

Stock based compensation expense related to common stock options

Balance, September 30, 2020

42,194,878

60,714,343

(33,705,705

(1,332,500

25,718,333

MEDICINE MAN TECHNOLOGIES, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

For the Three months Three September 30, 2020 and 2019

Expressed in U.S. Dollars

Common Stock

Additional Paid-in

Accumulated

Treasury Stock

Total Stockholders’

Balance at, June 30, 2019

31,769,511

31,170,261

(17,575,203

13,626,948

Net income (loss)

(1,827,978

(1,827,978

Issuance of common stock in connection with sales made under private of public offerings

16,133,271

16,140,871

Issuance of common stock in connection with the exercise of common stock purchase warrants

Issuance of common stock as compensation to employees, officers and/or directors

Issuance of common stock in exchange for consulting, professional, and other services

Stock based compensation expense related to common stock options

Balance, September 30, 2019

39,369,511

47,303,532

(19,403,181

27,939,841

Common Stock

Additional Paid-in

Accumulated

Treasury Stock

Total Stockholders’

Balance at, June 30, 2020

42,194,878

59,260,357

(30,791,494

(1,000,000

27,511,058

Net income (loss)

(2,914,211

(2,914,211

Issuance of common stock as payment for Mesa

Return of common stock as compensation to employees, officers and/or directors

Issuance of common stock in connection with sales made under private or public offerings

Return of common stock

Stock based compensation expense related to common stock options

Balance, September 30, 2020

42,194,878

60,714,343

(33,705,705

(1,332,500

25,718,333

MEDICINE MAN TECHNOLOGIES, INC.

STATEMENT OF CASH FLOWS

For the Nine months Ended September 30, 2020 and 2019

Expressed in U.S. Dollars

Cash flows from operating activities

Net income for the period

(10,889,228

(13,562,446

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization

Common stock issued in exchange for fees and services

Derivative expense

Loss on change in derivative liabilities

(2,990,486

Loss on investment, net

Stock based compensation

Changes in operating assets and liabilities

Note receivable

Accounts receivable

(2,868,093

Prepaid expenses and other current assets

Other assets

Operating lease right of use assets and liabilities

Accounts payable and other liabilities

Income taxes payable

Net cash used from operating activities

(6,303,992

(4,679,562

Cash flows from investing activities

Purchase of fixed assets

Cash consideration for acquisition of business

(2,609,500

Cash acquired in acquisition of business

Repayment (issuance) of notes receivable

Investment proceeds

Net cash used in investing activities

(3,107,900

Cash flows from financing activities

Proceeds from issuance of common stock, net of issuance costs and returns

19,600,000

Proceeds from exercise of common stock purchase warrants, net of issuance costs

Net cash earned for financing activities

20,201,726

Net decrease in cash and cash equivalents

(9,369,892

14,882,799

Cash and cash equivalents – beginning of period

12,351,580

Cash and cash equivalents – end of period

15,204,587

View source version on businesswire.com:https://www.businesswire.com/news/home/20201116005969/en/

CONTACT: Raquel Fuentes

Senior Director, Corporate Communications

303-371-0387

[email protected]

KEYWORD: COLORADO UNITED STATES NORTH AMERICA

INDUSTRY KEYWORD: ALTERNATIVE MEDICINE AGRICULTURE HEALTH NATURAL RESOURCES

Copyright Business Wire 2020.

PUB: 11/16/2020 04:05 PM/DISC: 11/16/2020 04:05 PM

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