Mr. Nirup Krishnamurthy reports

SCHWAZZE ANNOUNCES SECOND QUARTER 2023 FINANCIAL RESULTS

Medicine Man Technologies Inc., operating as Schwazze, has released its financial and operational results for the second quarter ended June 30, 2023.

Management commentary

"We continued to execute on our 'go deep' retail strategy in the second quarter, demonstrated by our acquisitions of Everest Apothecary in New Mexico in June, as well as Standing Akimbo and Smokey's in Colorado," said Nirup Krishnamurthy, chief executive officer of Schwazze. "Although it is early in the integration process and these stores have yet to ramp, in July, we began to recognize synergies from bulk purchasing, introducing new product assortment and leveraging best cultivation practices to improve yields, among other improvements. We expect to realize additional benefits as we further integrate our assets in the months ahead.

"The cannabis market environment in Colorado and New Mexico remains a challenge due to pricing pressure and licence proliferation in key markets. However, we are beginning to see early signs of wholesale pricing stabilization in Colorado and are hyperfocused on customer acquisition and experience, while maintaining our brand standards and margin through targeted promotions for customers. Through these efforts, we increased market share in both Colorado and New Mexico, demonstrating the effectiveness of our operating playbook and acquisition strategy, as well as our ability to execute in a competitive environment.

"Looking ahead, we will continue to run a lean operation while implementing the Schwazze retail playbook across our markets to expand our customer base, increase labour and price optimization, and improve customer loyalty and brand penetration. We are well positioned to continue driving strong adjusted EBITDA margins and consistent cash flow generation in 2023."

Recent highlights:

• Completed the acquisition of Everest Apothecary in June, increasing the company's New Mexico operations to 32 dispensaries, four cultivation facilities, two manufacturing facilities and over 400 employees statewide;
• Appointed Mr. Krishnamurthy as CEO;
• Acquired two Colorado retail dispensaries from Smokey's Cannabis Company;
• Acquired Standing Akimbo, the largest medical cannabis dispensary in Colorado, and opened the company's first medical dispensary in Colorado Springs under the Standing Akimbo banner;
• E-commerce penetration in New Mexico and Colorado grew approximately 45 per cent and 15 per cent, respectively, compared with the first quarter of 2023, when the program was first launched;
• Experienced 17-per-cent sequential growth of new customer loyalty members in the second quarter of 2023.

Second quarter 2023 financial results

Total revenue in the second quarter of 2023 was $42.4-million, compared with $44.3-million for the same quarter last year. The decrease was primarily due to lower wholesale revenue resulting from a 25-per-cent year-over-year decline in wholesale pricing and the proliferation of new licences in key New Mexico markets, partially offset by growth from new stores compared with the prior-year period.

Gross profit for the second quarter of 2023 was $24.5-million or 57.9 per cent of total revenue, compared with $25.2-million or 56.8 per cent of total revenue for the same quarter last year. The increase in gross margin was primarily driven by efficiency gains across retail, cultivation and production, partially offset by the aforementioned wholesale pricing pressure.

Operating expenses for the second quarter of 2023 were $19.6-million, compared with $16.1-million for the same quarter last year. The increase was primarily due to the four-wall SG&A (selling, general and administrative) increases associated with 27 additional stores in Colorado and New Mexico that are still ramping, as well as an increase in stock-based compensation. This was partially offset by efficiencies implemented throughout the company's operations.

Income from operations for the second quarter of 2023 was $5.0-million, compared with $9.0-million in the same quarter last year. Net loss was $6.6-million, compared with a et income of $33.8-million for the second quarter of 2022, primarily driven by a $35.2-million change in the non-cash accounting revaluation of the derivative liability related to the company's convertible note.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the second quarter of 2023 was $13.8-million or 32.6 per cent of revenue, compared with $15.0-million or 33.9 per cent of revenue for the same quarter last year. The decrease in adjusted EBITDA margin was primarily driven by lower revenue and higher SG&A associated with new stores that are still ramping, partially offset by improved gross margin.

As of June 30, 2023, cash and cash equivalents were $19.9-million, compared with $38.9-million on Dec. 31, 2022, while operating working capital increased by $5.8-million to $10.0-million during this period. Total debt as of June 30, 2023, was $155.4-million, compared with $127.8-million on Dec. 31, 2022.

Schwazze chief financial officer Forrest Hoffmaster added: "In addition to our focus on top-line growth, supply chain efficiencies and cash generation, we are capitalizing on our hyperregional retail strategy with a series of cost optimization programs that are improving our cash position and margins. We have begun to see the benefit of these initiatives and expect to drive further improvements in the months ahead."

Conference call

The company will conduct a conference call today, Aug. 9, 2023, at 5 p.m. Eastern Time, to discuss its results for the second quarter ended June 30, 2023.

Schwazze management will host the conference call, followed by a question-and-answer period. Interested parties may submit questions to the company prior to the call by e-mailing ir@schwazze.com.

Date:  Wednesday, Aug. 9, 2023

Time:  5 p.m. Eastern Time

Toll-free dial-in number:  888-664-6383

International dial-in number:  416-764-8650

Conference ID No.:  70252888

A webcast will be available.

The conference call will also be broadcast live and available for replay on the investor relations section of the company's website.

Toll-free replay number:  888-390-0541

International replay number:  416-764-8677

Replay ID No.:  252888

If you have any difficulty registering or connecting with the conference call, please contact Elevate IR at 720-330-2829.

About Medicine Man Technologies Inc., operating as Schwazze

Schwazze is building a premier vertically integrated regional cannabis company with assets in Colorado and New Mexico, and will continue to take its operating system to other states where it can develop a differentiated regional leadership position. Schwazze is the parent company of a portfolio of leading cannabis businesses and brands spanning seed to sale.

Schwazze 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's leadership team has deep expertise in retailing, wholesaling and building consumer brands at Fortune 500 companies, as well as in the cannabis sector.

Medicine Man was Schwazze's former operating trade name. The corporate entity continues to be named Medicine Man. Schwazze derives its name from the pruning technique of a cannabis plant to enhance plant structure and promote healthy growth.

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