Mr. Forrest Hoffmaster reports

SCHWAZZE ANNOUNCES FOURTH QUARTER AND FULL YEAR 2023 FINANCIAL RESULTS

Medicine Man Technologies Inc., operating as Schwazze, today released its financial and operational results for the fourth quarter and full year ended Dec. 31, 2023.

"This past year, the Schwazze team delivered solid top-line growth in two highly competitive markets with 31-per-cent adjusted EBITDA margins and improved operating cash flow," said Forrest Hoffmaster, interim chief executive officer of Schwazze. "We continued to sharpen our retail strategy while expanding our store footprint by more than 50 per cent to 63 dispensaries across our two markets. Although the Colorado and New Mexico markets were pressured in 2023, we have built a solid foundation with best-in-class service for our patients and customers. Internally, we are also relentlessly focused on maximizing the operating efficiencies of our manufacturing and cultivation facilities to drive higher yields, improved flower quality and greater output."

"With strong demand and over 680 recreational retail stores at year-end, the competitive landscape in Colorado is fierce, underscoring the importance of our investments in and attention to elevating the customer experience. We significantly outpaced the market in Q4 on a sequential and year-over-year basis and expect to bolster our growth through improvements in customer acquisition, retention and loyalty, as well as in the overall retail experience. Additionally, we are beginning to see wholesale pricing stabilize, which we anticipate will continue based on plant counts and ongoing retail pricing pressure.

"In New Mexico, the proliferation of new licences has led to increased competition and aggressive pricing strategies from certain players. Cannabis sales in the state were up 18 per cent across a store base that was over 50-per-cent higher year over year in Q4, leading to lower average revenue per store. While we are beginning to see a slowdown in net new store openings, we anticipate a challenging market ahead. We remain focused on cost optimization and asset utilization while implementing a balanced pricing and promotional strategy to drive traffic into our stores, where we believe we excel in delivering an elevated retail experience. We are committed to fulfilling our promise of being the retailer of choice in New Mexico.

"Looking ahead, we are optimistic about the regulatory momentum in the industry at large. In the meantime, we will continue to elevate the customer experience, improve our loyalty program, increase our cost-efficiencies and enhance our retail assets. Our team has a demonstrated track record of executing in competitive markets like Colorado and New Mexico where we remain one of the largest operators. We look forward to driving growth and profitability across each of our markets in 2024."

Full year 2023 operational highlights

• Expanded the company's retail footprint by more than 50 per cent in New Mexico and Colorado to 63 dispensaries.
• Completed the acquisition of Everest Apothecary, adding 14 dispensaries, one cultivation facility and one manufacturing plant to the company's New Mexico operations.
• 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.
• Acquired two Colorado retail dispensaries in Fort Collins and Garden City from Smokey's.
• Unveiled an enhanced, custom e-commerce platform in New Mexico under the R. Greenleaf banner.
• Increased wholesale penetration in Colorado and New Mexico by over three times year over year to more than 27-per-cent total door penetration in both states.
• Grew Lowell Farms preroll sales by over 250 per cent in Colorado where it is now the No. 1 preroll in the state. In addition, Lowell is in six of the largest Colorado accounts and will be available for wholesale in New Mexico starting April 1, 2024.
• Grew sales with Wana, the company's fan-favorite gummies brand, by 48 per cent in New Mexico where it is now in 130 doors with eight of the top 10 accounts in the state.

Fourth quarter 2023 financial results

Total revenue in the fourth quarter of 2023 increased 8 per cent to $43.3-million compared with $40.1-million for the same quarter last year. The increase was primarily due to growth from new stores compared with the prior-year period and increased wholesale revenue, partially offset by pricing pressure from the proliferation of new licences in New Mexico.

Gross profit for the fourth quarter of 2023 was $7.0-million or 16.2 per cent of total revenue, compared with $21.7-million or 54.1 per cent of total revenue for the same quarter last year. The decrease in gross margin was primarily driven by one-time, non-cash inventory adjustments of approximately $13.1-million comprising $3.1-million of product consolidation, obsolescence and shrinkage expenses, $4.3-million of net realizable value adjustments, and $5.8-million of fair value adjustments on acquired inventory in New Mexico in 2023. Adjusted gross profit, which excludes non-cash inventory adjustments, for the fourth quarter of 2023 was $20.2-million or 46.6 per cent of revenue.

Operating expenses for the fourth quarter of 2023 were $23.3-million compared with $24.2-million for the same quarter last year. The decrease was primarily due to a lower impairment charge in the fourth quarter of 2023. This was partially offset by an increase in four-wall SG&A (selling, general and administrative) expenses associated with the 22 additional stores in Colorado and New Mexico that are still ramping, as well as greater salaries and stock-based compensation.

Loss from operations for the fourth quarter of 2023 was $16.2-million compared with $2.5-million in the same quarter last year. The decrease was driven by the aforementioned lower gross profit, primarily related to the non-cash inventory adjustment. Net loss was $33.9-million for the fourth quarter of 2023 compared with $27.3-million for the same quarter last year.

Adjusted EBITDA for the fourth quarter of 2023 was $11.0-million or 25.3 per cent of revenue, compared with $13.3-million or 33.1 per cent of revenue for the same quarter last year. The decrease in adjusted EBITDA margin was primarily driven by higher operating expenses associated with the 22 additional stores that are still ramping.

As of Dec. 31, 2023, cash and cash equivalents were $19.2-million compared with $38.9-million on Dec. 31, 2022. Total debt as of Dec. 31, 2023, was $156.8-million compared with $127.8-million on Dec. 31, 2022.

Conference call

The company will conduct a conference call today, March 27, 2024, at 5 p.m. Eastern Time to discuss its results for the fourth quarter and full year ended Dec. 31, 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, March 27, 2024

Time:  5 p.m. Eastern Time

Toll-free dial-in:  888-664-6383

International dial-in:  416-764-8650

Conference ID:  38840334

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:  840334

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. (doing business as Schwazze)

Schwazze is building a premier vertically integrated regional cannabis company with assets in Colorado and New Mexico and will continue to explore taking 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 Technologies was Schwazze's former operating trade name. The corporate entity continues to be named Medicine Man Technologies. Schwazze derives its name from the pruning technique of a cannabis plant to enhance plant structure and promote healthy growth.

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