MEDICINE MAN TECHNOLOGIES, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

The following discussion should be read in conjunction with our unaudited
consolidated financial statements and notes thereto included herein and with our
audited consolidated financial statements included in our Annual Report on
Form 10-K for the year ended December 31, 2021, as filed with the SEC. In
addition to our historical unaudited condensed consolidated financial
information, the following discussion contains forward-looking statements that
reflect our plans, estimates, and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to these differences include those discussed below and
elsewhere in this Quarterly Report on Form 10-Q, particularly in Part II,
Item 1A, "Risk Factors." See also, "CAUTIONARY NOTE ABOUT FORWARD-LOOKING
INFORMATION."

COMPANY OVERVIEW

Established in 2014 and headquartered in Denver, Colorado, Medicine Man
Technologies, Inc., is a cannabis consumer packaged goods company and retailer.
The Company's focus is on building the premier, vertically integrated cannabis
company by taking operating systems to other states where it can develop a
differentiated leadership position. The Company 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
currently operates in Colorado and New Mexico.

Business results – consolidated

The following table sets forth the Company's selected consolidated financial
results for the periods, and as of the dates, indicated. The (i) consolidated
statements of operations for the three and nine months ended September 30, 2022
and September 30, 2021 and (ii) consolidated balance sheet as of
September 30, 2022 and December 31, 2021 have been derived from and should be
read in conjunction with the consolidated financial statements and accompanying
notes presented in this report.

The Company's consolidated financial statements have been prepared in accordance
with GAAP and on a going-concern basis that contemplates continuity of
operations and realization of assets and liquidation of liabilities in ordinary
course of business.

Revenue segments

The Company has consolidated financial statements across its operating
businesses with operating segments of retail, wholesale and other. The Company
also accounts for revenue by state within the operating segments of retail,
wholesale, and other for the State of Colorado and the State of New Mexico, each
of which are reported below.

BUSINESS INCOME BY SEGMENT

                                          For the Three Months Ended September 30,             2022 vs 2021
                                               2022                       2021                   $           %
Retail                                 $          39,759,734      $          20,741,864    $  19,017,870      92 %
Wholesale                                          3,335,252                 11,022,519    $ (7,687,267)    (70) %
Other                                                 96,000                     70,922    $      25,078      35 %
Total revenue                          $          43,190,986      $          31,835,305    $  11,355,681      36 %


                    For the Nine Months Ended September 30,             

2022 vs. 2021

                         2022                      2021                  $            %
Retail           $         104,386,464      $        54,083,880    $   50,302,584      93 %
Wholesale                   14,661,268               27,654,965    $ (12,993,697)    (47) %
Other                          184,200                  165,416    $       18,784      11 %
Total revenue    $         119,231,932      $        81,904,261    $   37,327,671      46 %


                                       32

  Table of Contents

REVENUE OF OPERATION BY STATE

                    For the Three Months Ended September 30,            2022 vs 2021
                         2022                       2021                  $           %
Colorado         $          30,953,225      $          31,835,305    $  (882,080)    (3) %
New Mexico                  12,237,761                          -    $ 12,237,761    ***
Total revenue    $          43,190,986      $          31,835,305    $ 11,355,681     36 %


                    For the Nine Months Ended September 30,           2022 vs 2021
                         2022                      2021                 $           %
Colorado         $          90,986,990      $        81,904,261    $  9,082,729     11 %
New Mexico                  28,244,942                        -    $ 

28,244,942 *** Total revenue $119,231,932 $81,904,261 $37,327,671 46%


Revenues for Colorado and New Mexico for the three months ended
September 30, 2022, totaled $30,953,225 and $12,237,761, respectively. Revenue
for Colorado for the three months ended September 30, 2022 decreased by
$882,080, or 3% compared to the prior period. Revenues for New Mexico for the
three months ended September 30, 2022 increased $12,237,761 compared to the
prior period, as the Company purchased the New Mexico business in the first
quarter of 2022. For the three months ended September 30, 2022, Colorado and New
Mexico represented 72% and 28%, respectively, of the Company's total revenue.

Revenues for Colorado and New Mexico for the nine months ended
September 30, 2022, totaled $90,986,990 and $28,244,942, respectively. Revenue
for Colorado for the nine months ended September 30, 2022 increased by
$9,082,729, or 11% compared to the prior period. Revenues for New Mexico for the
nine months ended September 30, 2022 increased $28,244,942 compared to the prior
period, as the Company purchased the New Mexico business in the first quarter of
2022. For the nine months ended September 30, 2022, Colorado and New Mexico
represented 76% and 24%, respectively, of the Company's total revenue.

                                         For the Three Months Ended
                                               September 30,                  2022 vs 2021
                                           2022             2021                $           %
Total revenue                          $  43,190,986    $  31,835,305    $  11,355,681        36 %
Total cost of goods and services          17,226,451       16,779,313      
   447,138         3 %
Gross profit                              25,964,535       15,055,992       10,908,543        72 %
Total operating expenses                  14,849,677       11,218,992        3,630,685        32 %
Income (loss) from operations             11,114,858        3,837,000        7,277,858       190 %
Total other income (expense)             (3,712,108)      (1,555,427)      (2,156,681)       139 %
Provision for income taxes
(benefit)                                  5,593,513        1,312,817        4,280,696       326 %
Net income (loss)                      $   1,809,237    $     968,756    $     840,481        87 %
Earnings (loss) per share
attributable to common shareholders
- basic                                $        0.00    $        0.02    $      (0.02)      (98) %
Earnings (loss) per share
attributable to common shareholders
- diluted                              $        0.00    $        0.02    $      (0.02)      (99) %
Weighted average number of shares
outstanding - basic                       51,232,943       44,145,709
Weighted average number of shares
outstanding - diluted                    137,954,532       44,145,709


                                       33

  Table of Contents

Quarter Ended September 30, 2022 Compared to the completed quarter
September 30, 2021

Also Read :  Haiti’s public health crisis deepens as cholera cases reported | Health News

Income

Revenues for the three months ended September 30, 2022 totaled $43,190,986,
including (i) retail sales of $39,759,734 (ii) wholesale sales of $3,335,252 and
(iii) other operating revenues of $96,000, compared to revenues of $31,835,305,
including (i) retail sales of $20,741,864, (ii) wholesale sales of $11,022,519,
and (iii) other operating revenues of $70,922 during the three months ended
September 30, 2021, representing an increase of $11,355,681 or 36%. The most
influential factor driving revenue increases in the third quarter of 2022 as
compared to the same period in 2021 is acquisition activity. Revenue for the
quarter ended September 30, 2022 included revenue from four consummated
acquisitions in Colorado and revenue from the Company's initial entrance into
the New Mexico market with the acquisition of R. Greenleaf, which were not in
revenue for the same period in 2021. Revenue from wholesale sales decreased, due
in large part to continued pricing pressure in the Colorado wholesale market as
a result of supply saturation in flower and bulk distillate products.

Cost of goods and services

Cost of goods and services for the three months ended September 30, 2022 totaled
$17,226,451 compared to cost of goods and services of $16,779,313 during the
three months ended September 30, 2021, representing an increase of $447,138 or
3%. Overall cost of goods and services increased due to the same acquisition
activities that generated substantial increases in revenue, but the rate at
which cost of goods and services increases from acquisition activity occurs at a
lower rate than increases in revenue from acquisition activity due to lower
wholesale flower pricing in Colorado and substantial vertical integration in New
Mexico generating favorable cost savings.

Operating expenses

Operating expenses for the three months ended September 30, 2022 totaled
$14,849,677, compared to operating expenses of $11,218,992 during the three
months ended September 30, 2021, representing an increase of $3,630,685 or 32%.
This increase is due to increased selling, general and administrative expenses,
professional service fees, salaries, benefits and related employment costs, all
largely driven by growth from acquisitions.

Other income (expenses), net

Other expense, net for the three months ended September 30, 2022 totaled
$3,712,108 compared to $1,555,427 during the three months ended
September 30, 2021, representing an increase in other expense of $2,156,681 or
139%. The increase in other expenses is due to higher interest payments due on
the Company's debt obligations as a result of compounding interest with the
passage of time and higher debt balances, which was partially offset this
quarter by the revaluation of the derivative liability related to the Investor
Notes issued in December 2021 that was recognized as income in the three months
ended September 30, 2022.

                                       34

  Table of Contents

Net Income (Loss)

As a result of the factors mentioned above, we made a net loss for the three months ended September 30, 2022 of $1,809,237compared to net income of
$968,756 for the completed three months September 30, 2021.

                                             For the Nine Months Ended
                                                   September 30,                 2022 vs 2021
                                               2022             2021               $           %
Total revenue                              $ 119,231,932    $  81,904,261    $ 37,327,671       46 %
Total cost of goods and services              57,173,192       44,692,765  
   12,480,427       28 %
Gross profit                                  62,058,740       37,211,496      24,847,244       67 %
Total operating expenses                      46,698,772       30,418,486      16,280,286       54 %
Income (loss) from operations                 15,359,968        6,793,010       8,566,958      126 %
Total other income (expense)                   4,770,919      (3,105,816)       7,876,735    (254) %
Provision for income taxes (benefit)          11,259,369        1,997,905       9,261,464      464 %
Net income (loss)                          $   8,871,518    $   1,689,289    $  7,182,229      425 %
Earnings (loss) per share attributable
to common shareholders - basic             $        0.07    $        0.04    $       0.03       80 %
Earnings (loss) per share attributable
to common shareholders - diluted           $        0.03    $        0.03    $     (0.00)     (13) %
Weighted average number of shares
outstanding - basic                           50,615,437       42,903,008
Weighted average number of shares
outstanding - diluted                        137,337,027       56,688,640


Years to date September 30, 2022 Compared to the year to date September 30, 2021

Income

Revenues for the nine months ended September 30, 2022 totaled $119,231,932,
including (i) retail sales of $104,386,464 (ii) wholesale sales of $14,661,268
and (iii) other operating revenues of $184,200, compared to revenues of
$81,904,261, including (i) retail sales of $54,083,880, (ii) wholesale of
$27,654,965, and (iii) other operating revenues of $165,416 during the nine
months ended September 30, 2021, representing an increase of $37,327,671 or 46%.
The most influential factor driving revenue increases in the first nine months
of 2022 as compared to the same period in 2021 is acquisition activity. Revenue
for the nine months ended September 30, 2022 included revenue from four new
acquisitions in Colorado, which included five new retail dispensaries, and
revenue from the Company's initial entrance into the New Mexico market with the
acquisition of R. Greenleaf that created an immediate initial portfolio of ten
retail dispensaries across the state of New Mexico, none of which were in
revenue for the same period in 2021.

Cost of goods and services

Cost of goods and services for the nine months ended September 30, 2022 totaled
$57,173,192 compared to cost of goods and services of $44,692,765 during the
nine months ended September 30, 2021, representing an increase of $12,480,427 or
28%. Year to date cost of goods and services in 2022 increased as compared to
2021 due to the same acquisition activities that generated substantial increases
in revenue, but the rate at which cost of goods and services increases from
acquisition activity occurs at a lower rate than increases in revenue from
acquisition activity due to lower wholesale flower pricing in Colorado and
substantial vertical integration in New Mexico generating favorable cost
savings.

Operating expenses

Operating expenses for the nine months ended September 30, 2022 totaled
$46,698,772, compared to operating expenses of $30,418,486 during the nine
months ended September 30, 2021, representing an increase of $16,280,286 or 54%.
This increase is due to increased selling, general and administrative expenses,
professional service fees, salaries, benefits and related employment costs, all
largely driven by growth from acquisitions.

                                       35

  Table of Contents

Other Income (Expense), Net

Other income, net for the nine months ended September 30, 2022 totaled
$4,770,919 compared to other expenses, net, of ($3,105,816) during the nine
months ended September 30, 2021, representing an increase in income of
$7,876,735 or (254)%. The increase in other income, net is primarily due to
significant gains recognized in connection with revaluation of the derivative
liability related to the Investor Notes for the nine months ended September 30,
2022, partially offset by higher interest payments due on the Company's debt
obligations as a result of compounding interest with the passage of time and
higher debt balances.

Net Income (Loss)

As a result of the above factors, we achieved net income for nine months September 30, 2022 of $8,871,518compared to net income of
$1,689,289 for nine months completed September 30, 2021.

Also Read :  Azerbaijan violated ceasefire three times within a week, Armenian Ministry of Defence reports

DRIVERS OF BUSINESS RESULTS AND KEY PERFORMANCE INDICATORS

Income

The Company derives its revenue from three revenue streams: (i) Retail, which
sells finished goods sourced internally and externally to the end consumer in
retail stores; (ii) Wholesale, which is the cultivation of flower and biomass
sold internally and externally and the manufacturing of biomass into distillate
for integration into externally developed products, such as edibles and
internally developed products such as vapes and cartridges under the Purplebee's
brand; and (iii) Other, which includes other income and expenses, such as,
licensing and consulting services, facility design services, facility management
services, the Company's Three A Light™ publication, and corporate operations.

Total profit

Gross profit is revenue less cost of goods sold. Cost of goods sold includes
costs directly attributable to product sales and includes amounts paid for
finished goods such as flower, edibles, and concentrates, as well as
manufacturing and cultivation labor, packaging, supplies and overhead such as
rent, utilities and other related costs. Cannabis costs are affected by market
supply. Gross margin measures our gross profit as a percentage of revenue.

Total operating costs

Total operating expenses other than the costs of goods sold consists of selling
costs to support customer relations, marketing and branding activities. It also
includes an investment in the corporate infrastructure required to support
the
Company's ongoing business.

Adjusted EBITDA

Adjusted EBITDA is derived from Operating Income, which is adjusted for one-time
expenses, merger and acquisition and capital raising costs, non-cash related
compensation costs, and depreciation and amortization.

Average basket size

Average Basket Size is calculated based on the average dollar value of all total
items purchased by a single customer during a single visit to one of the
Company's retail dispensary stores. Management monitors and utilizes Average
Basket Size to assess consumer preferences and behavior, effectiveness of
consistent reward and discount offerings, and product performance. Management
believes this metric can be useful to investors for a better understanding of
average customer spend and revenue across all Company retail dispensaries.
                                       36

  Table of Contents

Recorded Customer Visits

The Recorded Customer Visits metric reports the number of customers that have
visited any of the Company's retail dispensary stores and made a purchase.
Customer visits are recorded at the time of purchase. If a customer makes
multiple purchases in a day, each purchase is counted as an individual visit.
Management uses Recorded Customer Visits to monitor and assess Company
performance in the markets where it operates, consumer acceptance of the
Company's brand and products, customer retention, and store traffic. Recorded
Customer Visits is a useful non-financial metric for investors to contextualize
the Company's assessment of overall market performance and consumer appetite for
cannabis products.

Same store sales and stacked IDs

The Company utilizes Same Store Sales and Stacked Identical Store Sales
("Stacked IDs") to evaluate and monitor organic growth from existing
dispensaries. Management believes these metrics are useful for investors to
assess management of our retail stores and to distinguish revenue and growth
from operations from revenue and growth from acquisitions. Same Store Sales and
Stacked IDs are both expressed as a percentage that indicates the relative
increase or decrease to revenue for certain retail stores from the relevant
previous reporting period, which are reported separately for retail operations
in Colorado and New Mexico. Same Store Sales is calculated by comparing revenue
from sales for all dispensaries in existence for more than one year against the
revenue from the sales for the same dispensaries for a specified previous
period. Stacked IDs, which is derived from Same Store Sales, reflects Same Store
Sales as adjusted for dating discrepancies to report comparable sales for the
identical period of days for a specified previous period.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2022 and December 31, 2021, the Company had total current
liabilities of $30,041,901 and $45,263,179, respectively. The decrease is driven
by the revaluation of the derivative liability associated with the Investor
Notes. As of September 30, 2022 and December 31, 2021, the Company had cash and
cash equivalents of $38,725,187 and $106,400,216, respectively to meet its
current obligations. The Company had working capital of $41,548,525 as of
September 30, 2022, a decrease of $37,594,104 as compared to December 31, 2021.
The reduction in cash, and in turn working capital, is primarily driven by
expenditure of cash to fund acquisitions and operations.

The Company is an early-stage growth company, generating cash from operational
revenue and capital raises. Cash is being reserved primarily for capital
expenditures, facility improvements, acquisitions, and strategic investment
opportunities. The Company predominantly relies on internal capital that is
generated through revenue and any other internal sources of liquidity to meet
its short-term and certain long-term capital demands. Management believes the
Company's current projected growth, revenue from consummated acquisitions, and
revenue from operations will be sufficient to meet its current obligations as
they become due. The Company relies on a combination of internal and external
capital to meet its long-term obligations, with internal liquidity sourced from
revenue from operations and external financing acquired from various sources,
including commercial loan arrangements, capital raises and private placement
transactions, and cash from the Investor Notes. Management believes this
combination of internal revenue and external liquidity will be sufficient to
meet the Company's long-term obligations; however, it is possible the Company
will seek additional external financing to meet capital needs in the future. The
Company maintains the unused portion of the funds received from the Investor
Notes for future acquisitions and execution of strategic growth initiatives.

Due to our participation in the cannabis industry and the regulatory framework
governing cannabis in the United States, our debt and loan arrangements are
sometimes subject to higher interest rates than are market for other industries,
which has an unfavorable impact on our liquidity and capital resources.
Additionally, the cash requirements to service our debt obligations increase
with the passage of time due to interest accrual, which increases constraints on
our capital resources and tends to reduce liquidity in the amount of such
accruals. We currently anticipate meeting these cash requirements from operating
revenue and cash on hand. One of our strategic goals is to stimulate growth
through acquisitions, which also tends to negatively impact liquidity during
periods when we consummate an identified acquisition. We expect to continue
executing this strategy in future periods, meeting such capital requirements in
connection therewith from both internal capital and external financing
(including unused funds from the Investor Notes), which will decrease liquidity.
Additional factors or trends that have impacted or could potentially impact
liquidity in future periods include general economic conditions such as market
saturation, inflation, and general economic downturn. The Colorado cannabis
market has

                                       37

  Table of Contents
experienced downward pricing pressure from over-supply of certain cannabis
products in the market, which has improved retail margins in current periods but
will likely impact the relationship between cost and revenue if and/or when
supply is decreased in the Colorado market. Increasing inflation may also
negatively impact our liquidity, as our cost of goods and services may increase
without corresponding increases to revenue. Increasing inflation and general
economic downturn in the United States could also negatively impact revenue to
the extent such factors affect consumer behavior.

Cash flows

Also Read :  Indian workers rescued from digital job scams in Southeast Asia | News

Cash provided by (used in) operating, investing and financing activities

Net cash provided (used in) operating, investing and financing activities for the completed periods September 30, 2022 and 2021 were as follows:

                                                           For the Periods 

Finished September 30,

                                                                 2022                  2021

Net cash provided (used in) operating activities $ ($3,957,263) $4,814,104
Net cash used in investing activities

                           (105,117,739)        (75,644,398)
Net cash provided by financing activities                          

41,399,973 90,761,874


The Company's cash used in operating activities for 2022 is predominantly driven
by the gain on derivative liabilities from the Investor Note. The Company's use
of cash from investing activities is driven by acquisition of businesses,
cannabis licenses, and property, plant and equipment for existing entities such
as store remodels. Our cash provided by financing activities is mainly from
proceeds from our credit facility, the Investor Notes and the issuance of shares
of Common Stock.

© Edgar Online, source Glimpses

Source

Leave a Reply

Your email address will not be published.