Call End:
Body and Mind Inc. (OTCQB:BMMJ)
Q3 2022 Earnings Conference Call
June 21, 2021 05:00 PM ET
Company Participants
Graham Farrell – Investor Relations
Michael Mills – Chief Executive Officer
Trip Hoffman – Chief Operating Officer
Conference Call Participants
Tony Bowers – Intro-Act
Operator
Good afternoon, ladies and gentlemen, and welcome to the Body and Mind Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] Today’s call is being recorded, June 21, 2022.
And I would now like to turn the conference over to Mr. Graham Farrell, Investor Relations. Please go ahead, sir.
Graham Farrell
Thank you, operator. Good afternoon, and welcome everyone to Body and Mind’s fiscal Q3 2022 conference call. We are delighted to have you join us today. This call will cover Body and Mind’s financial and operating results for the third quarter ended April 30, 2022. Following our prepared remarks, we will open the conference call to a question-and-answer session. Our call today will be led by Body and Mind’s Chief Executive Officer, Michael Mills, along with the company’s Chief Operating Officer, Trip Hoffman.
Before we begin with our formal remarks, I would like to remind everyone that some of the statements on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to the financial projections or other statements of the company’s plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. Company’s actual results may differ significantly from those projected or suggested in any forward-looking statements due to a variety of factors, which are discussed in detail in our SEC filings.
I will now hand the call over to Michael Mills. Please go ahead, Michael.
Michael Mills
Thanks very much, Graham. Hello, thanks for taking the time for an update on the progress we’ve made at Body and Mind in the last quarter and we look forward to discussing the third quarter of fiscal [2020] (ph), ending April 30, [2020] (ph). On the call we have myself, Mike Mills, CEO and Trip Hoffman, our Chief Operating Officer.
As for discussing our financials, please recall that we are a U.S. GAAP issuer and we do report in U.S. dollars. We’re pleased to report consolidated revenue of $7.88 million for Q3, which is a slight dip over last quarter and a 10% revenue increase over the quarter a year ago. On a very conservative run rate that puts us roughly $30 million of revenue without allowance for growth from recently completed and ramping assets. We’ll discuss our current projects and licenses later on the call.
Our total assets remained steady at $52.9 million for the quarter. Our asset base is made up of valuable cultivation, manufacturing and dispensary assets with most operations and limited license dates and the sum of our sought after assets far exceeds our current valuations. Our total liabilities increased to $22.7 million for the quarter and our future liabilities include roughly $5 million in long term operating lease liabilities and a $7.4 million long term debt. These are unfavorable terms and are being serviced by cash flow.
We ended Q3 with $3.7 million in cash, which is roughly $2.7 million less cash than the beginning of the fiscal year. We also ended Q3 with $4.3 million in inventory. During the nine month period we used $3 million in investing activities, including $2.1 million cash from the Seaside acquisition. We continue to make investments in property and equipment across our operations. These investments during the last nine months have allowed us to continue our growth plan and diversify the company across strong limited license markets and jurisdictions.
We had over — just over 113 million shares of common stock outstanding as of April 30, and the same number of shares outstanding as of June 20. Our fully diluted is roughly 140 million shares with both the warrants and auction significantly ahead of the month. We’ve worked hard to grow the company at a measured pace and keep a clean balance sheet with no converts or preferred shares and a reasonable amount of debt to facilitate our future growth.
As we look forward to the Illinois license delays — as we look forward to Illinois license delays and additional growth opportunities there, we elected to extend our current long term debt maturity by one year, which we announced just yesterday, I think. And we also extended the $4 million delayed draw option to March of 2023. Whether with additional interest and fees to amend the terms of the debt, we see significant value and flexibility in the current market environment.
Turning to operating metrics. Our Q3 gross profit was $2.9 million, which was slightly down from Q2 gross profit of $3.02 million. Our gross margin for Q3 was 36%, which is a slight decrease from Q2 gross margin of 37%. The reduction in gross margin has resulted in several factors, including softer wholesale cannabis sales in Nevada and the startup of the Michigan dispensary, which opens its stores really at the beginning of Q3. We had a slightly negative adjusted EBITDA loss of $0.78 million for Q3, which was affected by onetime expenses from developing our opportunities with California, Ohio, Michigan and Illinois.
We look forward to increasing our performance metrics as we ramp up our newer developments and add more through our clean — through our lean infrastructure. We continue to be successful with moving our recognized brand into new markets with Body and Mind manufactured products now in Ohio, as well as Body and Mind flower in Arkansas. We received excellent feedback on our flower in Arkansas which builds our retail and wholesale brand in the state and also brings new customers into the Body and Mind dispensary in West Memphis.
I’d like to turn the call over to Trip Hoffman, our Chief Operating Officer to outline advances and initiatives across our various operations.
Trip Hoffman
Thank you, Mike. Today, I’d like to provide a brief operational history and some recent updates for each of the states that we operate. Beginning with Nevada, where we own and operate an 18,000 square foot cultivation and an 8,000 square foot production facility and also run a distribution operation. The recent updates are that, in January this year of 2022 we completed the upgraded distillation system at the production facility that now provides a tenfold increase in distillation capacity. This will allow us to continue to expand the contract manufacturing opportunities and the distillate wholesale revenue growth. In May of 2022, we also added three new edible products to join our fan favorite Pretzel Bites. These three are called the Chocolate Bites, the Crispy Bites, and the Fruit Bites.
Moving on to Ohio, where we own and operate a medical dispensary and a 4,000 square foot production facility just outside of Cleveland. Last fall, in November, we shipped the first Body and Mind branded production products to the Ohio market. In January this year, we shipped additional Body of Mind SKUs and we’re selling into six other dispensaries, and we also carried out the first live resin extraction. By many of this year we had increased our branded product availability locations to 14 of the states 56 dispensaries. And in May, we also pre received approval from the state to use the kitchen as just part of the facility to produce edibles and vapes.
In California, we own and operate dispensaries in Long Beach, San Diego and Seaside. Last December, we took over managing of the Seaside dispensary. And also in December we received approval from the City of Seaside and notified the state for the ownership change as provided for in the first purchase agreement. Also in December, we rebranded the Long Beach dispensary from ShowGrow to a BaM Body and Mind branded dispensary. In the first half of this year, we’ve been focusing on new license applications and limited license jurisdictions throughout the state.
Moving on to Arkansas, where we operate and have the rights to convert into ownership, a medical dispensary with a small cultivation and production facility just across the river from Memphis, Tennessee. Last fall, in November, we recorded the first harvest from the cultivation part of the facility. In December, we had the first sales of Body and Mind branded flower. This year in 2022, in February, we completed the phenotype research and commenced our perpetual harvest schedule for cultivation. In March of ‘22, we secured our third party purchase orders for BaM biomass and then this included engagements for contract manufacturing and providing extracts back to us. In April, we received that first concentrate products extracted from the BaM biomass and prepared to be sold in other dispensaries. In May, we became the first dispensary in Arkansas to sell flower and concentrates to other dispensaries in the state. You can now find BaM branded flower and concentrates in six other dispensaries there.
In Michigan, we own an operate dispensary in Muskegon and have presently paused construction of a fully owned cultivation and production facility in Manistee. In January 0f ‘22, we began the construction of that cultivation production facility in Manistee. In February of ‘22, we opened a retail store in the Muskegon as a Body and Mind branded medical and adult use dispensary. And in March of ‘22, we paused the cultivation production facility construction, pending further evaluation of market opportunities.
And finally, in Illinois, where we are the recipient of two provisional adult use dispensary licenses for the Greater Chicago Land Region. Last August, as many of you know, two of our [indiscernible] Body and Mind has a management and convertible loan agreements in place, received the winning numbers from the lottery in the Greater Chicago area region for adult use dispensaries. End of last quarter of last year, in the first half of this year, we have been working diligently identifying cities in the Chicago area to locate our dispensaries when the provisional license are received and we continue to work with local government staffs to receive these SUP approvals. And finally, in June this month, the Illinois Department of Financial and Professional Regulation announced that it will be issuing the provisional adult use retail licenses in late July. So we look forward to receiving those.
Back to Mike.
Michael Mills
Thanks very much, Trip. I think we can open for questions here if there’s any questions.
Question-and-Answer Session
Operator
Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Tony Bowers. Please go ahead.
Tony Bowers
Yes. Hi, Mike. It seems that for a few quarters now you run into a stall, at least, in top line, how much of that is environmental? And what’s it going to take to break out? You’re spending, obviously, a lot of energy and money building out the infrastructure and improving operations, but what do you think it’s going to take to get your top line moving up again?
Michael Mills
Yes. Thanks, Tony. I think that we have certainly seen a systemic and really nationwide slowdown in cannabis sales, certainly during the latter part of last year and even in the earlier part of this year and we felt an impact along those lines. We are starting to see some of the operations that are relatively near that of the Ohio production facility. It would be the Michigan dispensary that are starting to ramp more. And if you think about opening any sort of facility, whether it’s a cannabis business or a regular business, your first few months tend to be slower and then you’re getting your stride and start to ramp there. So we do see some ramp from those facilities. I think we’ve really been looking forward to the state of Illinois releasing these licenses. Obviously, that’s not a revenue next week or next month or maybe even next quarter, but we are — we’re looking forward to those as being real significant drivers of growth for the company.
Tony Bowers
And you guys have been very careful to go into limited license states. Does that mean that you’re still confident that holding your own is going to put you in a better position once the environment improves?
Michael Mills
Yes, we do. I mean, we’ve taken a measured approach to growing the company, and I think that the fact that we’ve done very few equity raises really speaks to our interest in running a lean company, picking the right jurisdictions to get into, and also having some optionality around jurisdictions that are medical, such as Ohio and Arkansas, that have an opportunity to go adult use and particularly Arkansas is looking positive to be a valid initiative coming into 2022. And we really see that as being a huge driver for that state.
Now the other thing that we’re doing on a consistent basis is applying for licenses in new jurisdictions that are opening up. And when you think of a — when you think of a state like California where even though the state is — the state is legal, there’s numerous jurisdictions, meaning, in fact, I think it’s well over 50% of the country that still does not allow cannabis retail or even cultivation manufacturing in their jurisdiction. Some of those are starting to flip and some of those are opening new jurisdictions. So we keep an eye on those ones. We keep an eye certainly on the new states that are opening up. And we have a great application writing team. I think the fact that we were successful in Chicago was a real testament to our team, and there’s some luck involved as well. But we have a team who put together a fantastic application.
And that has been — I wouldn’t say it’s been the backbone of our success, and the backbone of our success has been just a ton of hard work in understanding the business and all aspects of the business, but certainly winning licenses has been incredibly helpful for us.
Tony Bowers
Do you think that this environment being a little sort of more tempered right now is causing somewhat irrational competition to diminish?
Michael Mills
Yeah, I do. Look, I think these equity markets are incredibly challenging. There’s — obviously, there’s states that you would — you probably would never want to operate in. We start getting — We’ve worked to stay away from those. But yeah, when I look at competition on a retail perspective and not necessarily on a market perspective, we’re seeing — we’re definitely seeing some states where there’s pricing pressure on flower. There’s more and more competition for the consumer. And I think you really need to dig deeper, you need to have a large bench of experience, which we have to be able to be a strong producer, get good yields, produce fantastic product and we see that. I think Trip talked about Arkansas, and the benefit of being able to grow high end premium product in Arkansas is, we’re seeing a lot more people coming to our dispensary because they like the product that we are creating there.
And in fact, we’ve just really — it’s been great to have so many other dispensaries in the state sort of knocking on our door saying, we’d like to be able to sell that as well, we keep hearing people talk about it. So I think that if you’ve got a level of understanding and certainly the experience that we do coming out of six plus years in Las Vegas and you can port that experience into the new states that you’re operating in. And I’ll give you an example. We have a fantastic extractor in Las Vegas, and he’s been working very closely with our Ohio team to bring our extracted products into that state. And it’s not something that extraction is part art, part science. And really the judge is the person who tries it and comes out and says, this is top shelf product, and that’s really what we strive for. And I think it’s been a large feature of our success.
Tony Bowers
Can you give us just a little bit more color on the pause in the Manistee facility?
Michael Mills
Yes, absolutely. I think that we had — we had a strong plan to bring our cultivation skills into the Michigan market. And when we started construction it — the market was still running hot and we started to see some price compression in flower. We started to see a lot of cost escalation in construction. And at a point in time, you sort of — you look at — you look at your IRR and your payback and capital and obviously capital has become very significant — significantly tight over the last six months and start to look at whether that capital makes more sense in Michigan or it makes more sense in Illinois or it makes more sense in another market. We certainly have not abandoned the Michigan cultivation wholly, but we are looking at potentially resizing it and potentially just waiting to see what, A, what the market does on flower prices, but B, to see if we get some reprieve on steel prices on and I think the biggest concern for anybody who’s building a cultivation facility right now is, some of those specialty items have lead times and everyone’s aware that it’s not just the [Canvas and Street] (ph) every industry out there. Some of these specialty items have lead times that just tripled. And if you’re building a cultivation, you don’t get your license until it’s fully operational. And if you’re waiting for one piece, whether it’s an irrigation piece, whether it’s an electrical piece, whether it’s a controller, and it takes another month or it takes another two months to arrive, that has a very serious impact. So I think our decision to step away or pause that has actually worked out very well.
Tony Bowers
Thank you.
Michael Mills
Thanks, Tony.
Operator
There are no further questions from the phone lines. At this time, I will turn the conference back to Mr. Michael Mills for closing remarks. Please go ahead, sir.
Michael Mills
Thanks very much everyone. We really appreciate taking the time to listen in today. In conclusion, I’d like to thank the entire team at Body and Mind. They continue to develop innovative new strains, really great products and share our cannabis knowledge across our entire company and our new operations. And we’re really looking forward to expanding over the next quarters.
Operator
Ladies and gentlemen, this does conclude your conference call for this afternoon. We would like to thank you for participating and ask that you please disconnect your lines.
Be the first to comment