While other states may be getting more attention these days, the oldest adult-use market in the U.S. and its neighbor to the south still offer some solid opportunities, according to Medicine Man Technologies (OTCQX: SHWZ) (Cboe: SHW), which operates as Schwazze.
During its latest fourth quarter 2023 earnings call, the Colorado-based cannabis operator provided insight on how it’s looking to grow in its home state and in New Mexico, as the firm tries to temper its losses.
Colorado
Colorado, being a more mature market, faced a 15% year-over-year decline in sales during the 2023. But Schwazze outperformed the state market with nearly 8% growth.
The company attributed that success, in part, to Colorado’s success in combating the illicit market with more aggressive enforcement and collaboration between regulators and the cannabis industry.
That has resulted in a more stable and compliant market compared to other states, according to Chairman Justin Dye.
“Colorado, we believe, really got this right in the regulations,” Dye told investors Thursday morning. “And they really partnered with the legislature, with the governor, with the mayor of Denver and a lot of the other geographies, and enforcement has been very robust.”
Schwazze continued to reap market share in Colorado, ending 2023 with a 7.8% share. The company’s revenue per store in Colorado also surpassed the state average of $112 per store.
One of the biggest challenges in the state has been the wholesale market. However, the wholesale market in Colorado is showing signs of stabilization, interim CEO and CFO Forrest Hoffmaster said, with fewer cultivation licenses and consistent flower prices around $750 per pound.
“We still have supply glut. We are seeing plant counts come down. We are seeing stabilization on the wholesale pricing side,” Hoffmaster said. “And the way I’m looking at that right now is, our retail pricing situation was completely different pre-COVID and certainly during COVID. We feel like the retail pressure on the top side will stay in place.”
Dye said the company is well positioned for growth in the state.
“This could be a shakeout year for Colorado and our lightweight capital model, strong retail capabilities, we believe position us very well to continue to grow share of wallet from our customers,” Dye said. “We’re going to continue to focus on retail execution and optimizing customer acquisition with loyalty and retention and unlocking liquidity through our current asset base.”
New Mexico
On the other hand, in New Mexico, where adult-use sales launched in 2022, an influx of new licenses has outpaced market growth. That’s led to more competition and lower revenue per store for Schwazze.
Management said it has been focusing on improving the in-store experience, customer loyalty, and optimizing pricing strategies to remain competitive in the market.
Despite the challenges, Schwazze sees green in New Mexico. The company is expanding its wholesale presence, with 18% year-over-year growth during the period and a rise from 22% to 28% of total wholesale revenue quarter-over-quarter.
“First of all, year-over-year comparisons on total wholesale is largely pricing and bulk distillate,” Hoffmaster said. “We’re seeing strong growth, 24%-unit increase overall. In New Mexico in particular, really excited about what the wholesale team is doing there; excited about the hard work and progress there.”
Schwazze plans to introduce its Lowell Farms brand, currently the top pre-roll brand in Colorado, to the New Mexico market in April 2023.
“We have also made solid progress with our fan-favorite gummies brand, Wana, which grew 48% in 2023 and is now in 130 stores with eight of the top 10 accounts in the state,” he added.
The company also said it’s implementing cost-saving measures and synergy opportunities in New Mexico, particularly in its cultivation and manufacturing facilities. Management wants to optimize the firm’s assets and improve its inventory position to better serve the market.
“We’ll continue to monitor and our goals to pick up assets at attractive values that fit really our game plan of going very deep in Colorado and New Mexico,” Dye said. “So, we’ll play offense where there’s an opportunity while we’re optimizing the business.”
The post Schwazze predicts ‘shakeout year’ for Colorado cannabis market appeared first on Green Market Report.
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