MariMed Inc. (PNK:MRMD) Q4 2023 Earnings Call Transcript

MariMed Inc. (PNK:MRMD) Q4 2023 Earnings Call Transcript March 7, 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. Good morning. My name is Lara and I'll be your conference operator today. At this time, I would like to welcome everyone to the MariMed Inc. Fourth Quarter 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's 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.

Steve West: Good morning everyone and welcome to MeriMed's fourth quarter and full-year 2023 earnings call. Joining me today are Jon Levine, our Chief Executive Officer; and Tim Shaw, our Chief Operating 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 are contained in the risk factors section of our 10-K and our earnings release, which are 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 and our supplemental slides located in the Investors Section of our website. Finally, our first quarter 2024 earnings release is tentatively scheduled to be issued after the markets close on May 8 2024 and our Analyst Call is tentatively scheduled to be held on the morning of May 9 2024 at 8:00 a.m. I will now turn the call over to Jon.

Jon Levine: Thank you, Steve, and good morning, everyone. I'm pleased to report that MariMed had another strong year, which was the result of revenue growth in our core wholesale business in Maryland and Massachusetts, as well as our new dispensary ramping towards maturity. Even though we face significant regulatory and construction delays beyond our control, MariMed continues to perform better than the overall industry in terms of top line growth and financial strength. We reported double-digit revenue growth for the 6th consecutive year. We reported positive adjusted EBITDA for the 16th consecutive quarter and fourth consecutive full-year. And we generated positive operating cash flow for the fourth consecutive year. I am not aware of any other cannabis company that has a proven track record of [Technical Difficulty] positive results equal to ours.

Let me quickly highlight a few of our key achievements during the year. In Massachusetts, we acquired Ermont, a vertical operator in Quincy, and opened a new dispensary in Beverly. We commenced operations in our fifth state with the opening of a dispensary in Tiffin, Ohio. In July, we began adults [Technical Difficulty] in Maryland, leading to our Annapolis dispensary more than doubling its revenue and significant increase in our wholesale operation. In Illinois, we opened our fifth dispensary in Casey. More importantly, we became vertical with the opening of our new processing facility in Mount Vernon. And finally, we reintroduced Betty's Eddies and launched our other brands into the market. We are looking for a full-year contribution from all of our new assets in 2024 and beyond.

Perhaps our most notable achievement in 2023 was securing what is arguably the most favorable financing package in the cannabis industry. We refinanced $59 million in debt at approximately 8% interest with a 10-year maturity. This deal saves us millions of dollars a year in interest expense, which will significantly increase our cash flow, and the transaction resulted in zero shared dilution to shareholders. No new equity was issued. Other cannabis companies made headlines recently with financing deals that looked as attractive as ours. However, when you consider the dilution baked into those transactions, the all-in cost of debt significantly exceeded what we achieved. While our biggest year with respect to opening new assets, the momentum has continued into 2024.

We command wholesale operations at scale in Illinois this past January. Our Betty's Eddies, Bubby’s Bakes, and In-House Baked are now widely accessible throughout the state. Vibations just launched last week and the remainder of our brand including in-house gummies will be launched very soon. And today we announced the pending acquisition of our second dispensary in Maryland located in Prince George's County. We also announced receipt of the certificate of occupancy for our permanent dispensary location in Casey, Illinois and hope to have it open and running in the next few weeks. That concludes our 2023 recap. With that, I will turn the call over to Tim for our operational update and outlook for 2024.

Tim Shaw: Thank you, Jon. Good morning, everyone. Let me start with a quick recap of our 2023 results and then jump into our 2024 operations plan. First, we reported retail sales of $95.5 million, which grew 3% versus 2022. Massachusetts and Maryland both experienced strong growth, which was offset by a decline in Illinois sales due to increased competition and lower average check. Illinois dispensary costs increased more than 55% in the past year, which has led to an overall decline in average sales per store of about 30%. Overall we are pleased with our growth of our retail business despite challenges in Illinois. Our big story of the year was wholesale. We reported revenue of $49 million, which increased 48% versus 2022. This growth was driven primarily by adult use in Maryland and organic growth in Massachusetts, which we expect to continue through 2024.

On the brand and marketing front, we had several big wins including the amazing growth of our new in-house suite of value products, which is now our second largest brand behind Nature's Heritage. This significant demand for quality products at affordable prices led to an almost cult-like following for our in-house brand in Massachusetts and Maryland. Illinois is off to a strong start as well. During the year, our brand won three national awards in High Times Cannabis Cup Competition. Vibations took first place in the edibles beverage category, while Bubby’s baked brownie bites took second place in the edibles chocolate and non-gummy category. And the Nature's Heritage Sherb Cake Live Resin took second place in the concentrate solvents category.

In Maryland specifically, Betty's Eddie's won favorite edible and the Nature's Heritage was named favorite RSO at the end of 2024. We could not be more pleased with the continued success of our amazing brands at both the local and national level. For 2024, our operations focus will be on ramping up our new assets in Ohio, Massachusetts, and Illinois. We will also focus on completing construction of our new cultivation facility in Illinois, our processing kitchen in Missouri, and the cultivation expansion in Maryland. Our 2024 sales, marketing, and product development plans focus on delivering a full slate of new products that consumers want. Brands are the future of cannabis, and I am confident that we have the best brands with the best brand builders in the industry.

We will continue driving visibility of our existing brands with increased media reach through targeted digital advertising, strong promotional partnerships, and other proven strategies. In the first-half of 2024, our brand and marketing campaigns include the following. For Betty’s, we recently launched our Betty’s Bubbly Fruit Chew as part of the 10th anniversary celebration of Betty’s Eddies. Just this week, we followed that up with our biggest product launch of the year, Betty's Ake Away PM. This will combine the best of our two top selling skews, Bedtime Betty's and Ake Away Eddies, for pain and sleep management. In May, we will bring back our Beast Time Betty's limited time offering. For Bubby’s Baked Goods, we plan to launch a new banana bread, which is easily the best-tasting banana bread I've ever had.

For Vibations, we just launched several new flavors, formulated with new technology to provide a quicker onset. If you haven't tried Vibations, wait until you try our new Pina Colada flavored drink mix, it’s amazing. And we have huge plans for my baby, Nature's Heritage, which includes a robust lineup of new product launches and marketing campaigns. We just launched double fresh duos that couples an eighth of two different flower streams into a single quarter ounce jar without sacrificing any of the aromas or quality. We will also enter the fast growing mini pre-roll category with Tiny Timbers, a travel pack that contains six-eighth gram pre-rolls, each of which are meant to be smoked in a single sitting. Finally, I'm thrilled to announce our mega-exclusive sponsorship with Concert Giant Livenation.

Starting this month, Nature's Heritage will be the exclusive cannabis brand for the MGM Grand Music Club located next to Fenway Park in Boston. MGM Grand is Live Nation's top music club in the world. We have a comprehensive marketing plan that will include on-site brand visibility, ads on Livenation's ticketing site, and tickets for promotional purposes. It's a landmark sponsorship for Livenation, MariMed, and the cannabis industry as a whole. I could not be more excited about the opportunity to partner with our leading flower brand with such a culture forward platform. We have many more products, brands, and marketing campaigns planned for the rest of the year, which I will update you on the coming months. The buzz and excitement within our sales and marketing team is truly lighting up the office.

We're kicking off this year on a big high. That concludes my operational review. I will now turn the call over to Steve for our financial review.

Steve West: Thank you, Tim. I would like to start with a brief overview of our full-year 2023 financial results, then conclude with our 2024 financial targets. Our full-year 2023 revenue was approximately $149 million, which was the midpoint of our full-year guidance range of $148 million to $150 million and was up 11% year-over-year. Our revenue growth was driven by strength in both our wholesale and retail channels. Our full-year 2023 non-GAAP adjusted gross margin was 45.4%, also above our full-year guidance of 45%. Our gross margin declined approximately 300 basis points versus 2022, due to losing 100% margin [Technical Difficulty] fees with a consolidation of Kind Therapeutics, higher input costs, and pricing pressure. Our full-year 2023 adjusted EBITDA was $25 million, which was slightly below our full-year guidance range of $27 million to $32 million and a decline versus our 2022 adjusted EBITDA of $32 million.

This year-over-year decline in adjusted EBITDA was due primarily to our gross margin decline, investments and operating capabilities, increased labor associated with the new asset openings, and losses incurred ramping up the new facilities. Turning to the balance sheet and cash flow, we ended 2023 with $14.6 million of cash and equivalents, which increased 50% versus our 2022 year-end cash balance of $9.7 million. Our working capital remained strong at $20.6 million and increased 17% versus our working capital at the end of 2022. Cash flow from operations [Technical Difficulty] 2023 was $7.9 million and we spent $20.1 million in CapEx. That concludes our 2023 financial review. Before discussing our ‘24 financial targets, I want to note that they are based solely on organic growth within our existing core business.

With this in mind, our 2024 financial targets are as follows: revenue growth of 5% to 7%, driven by our wholesale business, partially offset by a decline in retail. We expect retail growth in Massachusetts, Maryland, and Ohio to be offset by declines in Illinois, which are being impacted by increased competition and continued declines in average check. According to public data, Illinois's average sales per store in December declined by 32% as the number of dispensaries grew 57%. This increase in retail dispensaries will continue to negatively impact average unit economics as we have seen in other states that significantly increase store counts. We are targeting non-GAAP adjusted EBITDA growth of 0% to 2% as we continue to experience higher costs associated with building and ramping up new assets.

For example, in 2023, we spent $1.1 million in startup expenses bringing new assets online. Additionally, our EBITDA loss to operate these new assets was $2.6 million. More recently, our three newest assets to come online had EBITDA loss of nearly $1 million in the fourth quarter of 2023. We view this as a short-term drag and we are confident both revenue and EBITDA will increase as these assets mature. Finally, we are targeting CapEx of approximately $10 million for the current construction projects, which is the remaining CapEx we originally projected for 2023 that was not spent due to the regulatory and construction delays. That concludes our financial review and outlook. I will now turn the call back over to Jon for his concluding remarks.

Jon Levine: Thank you, Steve. I'm very pleased with MariMed’s performance, and we continue to significantly outpace our peers with respect to top line revenue growth. And I sit here today confident we will continue this trend in 2024, despite the continued industry challenges we all face. We remain focused on executing our strategic plan. That said, we never sit idle waiting for good things to happen. We continually review our plan and focus on initiatives that have potential to generate increased shareholder value. We are extremely confident the course we have charted is on point. MariMed still has one of the most conservative balance sheets in the industry. We have access to arguably the lowest cost capital in the industry.

Our new assets are ramping and generating more revenue every quarter. Continue to report significantly stronger growth in our core state of Maryland and Massachusetts and that just speaks to our [Technical Difficulty] growth, which brings me to our financial outlook. We have long prided ourselves on giving conservative financial targets and 2023 was no different. We built in conservatism with our asset opening timeline. However, we could not anticipate the magnitude of delays we experience in securing basic construction materials such as electrical boxes and stainless steel fasteners. There were delays of time for regulators in certain states to complete their approval process. We have discussed providing financial targets with our largest institutional investors and industry analysts.

We have received amazing support from both groups, and I'd like to thank everyone who provided us valuable insight and advice. After significant consideration, we decided to provide forward-looking targets based on organic growth within our existing businesses with essentially no incremental growth projects such as adult use sales in our Tiffin, Ohio or Quincy, Massachusetts dispensaries. Make no mistake, these incremental growth opportunities are crucial to our strategic growth plan, but we are not presently including them in our 2024 targets. If these or any revenue generating projects are completed, we will update our targets accordingly. We believe this will help us to better focus our discussions on important business development. We have significant levers that could generate an additional 5% to 7% growth on top of our revenue target, and an additional 8% to 10% in EBITDA.

These include the opening of a new processing kitchen in Missouri, the approval of adult use licensing in Quincy dispensary, the commencement of adult use sales in Ohio, our second dispensary in Maryland, new brands or product lines, and other mergers and acquisitions or new licenses that we could win. We have set the table for continued revenue growth and profitability just as we said we would. I am extremely bullish on the future of MariMed to maintain our growth profile for the foreseeable future. We have the capability to grow and we have access to low-cost capital for the right merger or acquisition opportunities. With that, I would like to thank our growing family of employees for their hard work and dedication to help MariMed achieve our mission to improve the lives of people every day.

Operator, you may open the line for questions.

Operator: Thank you. [Operator Instructions] We have our first question coming from the line of Pablo Zuanic from Zuanic & Associates. Please go ahead.

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