Schwazze (SHWZ:OTCQX) posted a strong fiscal year 2021 (FY21), and the outlook for the cannabis firm in 2022 is positive, reported Noble Capital Markets analyst Joe Gomes in an April 11 research note.
Gross profits in 2021 were "primarily due to the StarBuds acquisition, the company's purchasing approach and implementation of their retail strategy," Gomes wrote. "We expect Schwazze to continue to take market share in both Colorado and now in New Mexico."
Noble has an Outperform rating and a $4 per share target price on Schwazze.
Schwazze — formerly operating as Medicine Man Technologies Inc. — is a U.S.-based cannabis industry consulting company with retail and wholesale cannabis operations in Colorado and New Mexico.
Financial results for the last quarter of the company's 2021 fiscal year, ended Dec. 31, 2021, indicate Schwazze outperformed year over year but underperformed compared to the previous quarter and Noble's expectations, Gomes wrote. The analyst attributes this to "overall softness in the Colorado market," which negatively impacted the company's retail and wholesale divisions.
Specifically, Schwazze reported total Q4 FY21 revenue of $26.5 million ($26.5M), up 234% over Q4 FY20's $7.9M. The figure was down, though, from revenue in Q3 FY21 of $31.8M and below Noble's estimated $32.6M. Total Q4 FY21 operating expenses amounted to $8.5M, less than $9.4M in Q4 of the previous year.
Results for the full year of 2021 reflect significant year-over-year growth, Gomes relayed. During 2021, the company closed or announced the acquisition of seven additional companies. Today, Schwazze has 33 cannabis dispensaries, seven cultivation facilities and two manufacturing facilities. As measured by revenue, Schwazze is the largest cannabis operator in Colorado, according to management.
Schwazze: a type of pruning in which 100% of the fan leaves are removed from the plant during specific times of the plant's growth cycle.
The company's total 2021 revenue was $108.4M, a 352% year-over-year increase. Q4 FY20 revenue was $24M. The retail segment generated the bulk of the revenue due to newly acquired Colorado dispensaries. Retail revenue was $73.7M, a 1,811% increase over 2020's $3.9M.
Wholesale revenue in 2021 increased 85% due to the acquisition of cultivation facilities and greater sales of distillate products. Revenue was $34.4M, up from $18.6M the prior year.
Schwazze's gross profit margin rose to 45.5% in 2021 from 28.2% in 2020, "due to the StarBuds acquisition, the Company's purchasing approach and implementation of their retail strategy," Gomes wrote.
Total 2021 operating expenses were $38.9M, compared to $29.7M in 2020.
Schwazze ended 2021 with $106.4M million in cash and cash equivalents.
"We view 2022 as a year of integrating the acquisitions and implementing the Schwazze operating playbook to drive revenue and margins," Gomes wrote.
Looking forward, Gomes noted, Schwazze is expected to continue to grow organically and inorganically, capture additional market share in Colorado and New Mexico and potentially expand into other U.S. states.
For 2022, management guided to an annualized run rate between $220M and $260M. Noble projects Schwazze will generate $195M of revenue and achieve an earnings per share of $0.27.
Noble has an Outperform rating and a $4 per share target price on Schwazze. In comparison, the stock is currently trading at around $2.10 per share.
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Disclosures for Noble Capital Markets, Inc., Schwazze (OTCQX: SHWZ), April 11, 2012
The following disclosures relate to relationships between Noble and the company (the "Company") covered by the Noble Research Division and referred to in this research report.
The Company in this report is a participant in the Company Sponsored Research Program ("CSRP"); Noble receives compensation from the Company for such participation. No part of the CSRP compensation was, is, or will be directly or indirectly related to any specific recommendations or views expressed by the analyst in this research report.
Noble intends to seek compensation for investment banking services and non-investment banking services (securities and non-securities related) within the next 3 months.
Noble is not a market maker in the Company.
ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE: Joe Gomes, Senior Research Analyst, Senior Generalist Equity Analyst. Chartered Financial Analyst. Over 25 years experience as a Generalist Analyst focused in the small to mid-cap space. MBA in Finance from Pace University and a BS in Agricultural Economics from Cornell University.
RESEARCH ANALYST CERTIFICATION
Independence Of View: All views expressed in this report accurately reflect my personal views about the subject securities or issuers.
Receipt of Compensation: No part of my compensation was, is, or will be directly or indirectly related to any specific recommendations or views expressed in the public appearance and/or research report.
Ownership and Material Conflicts of Interest: Neither I nor anybody in my household has a financial interest in the securities of the subject company or any other company mentioned in this report.