Cansortium Inc. (Ticker: OTC:CNTMF), a leading player in the cannabis industry, reported a significant increase in revenue and continued positive cash flow in their fourth quarter of 2023 earnings call. The company announced a 9% revenue boost to $25.5 million for the quarter, with an 11% increase for the full year, reaching $97.3 million.
Cansortium's expansion efforts are evident with the opening of new dispensaries in Florida and plans for additional stores focusing on adult-use markets. Despite the need for restatement affecting their adjusted EBITDA by $6.7 million, the company remains optimistic about their growth trajectory, supported by their cultivation facility developments and patient growth in Texas.
Key Takeaways
- Cansortium reported record revenue of $25.5 million in Q4 2023, with a full-year revenue of $97.3 million.
- The company saw a 10.8% revenue growth in Florida and opened two new dispensaries.
- They released their first line of concentrates in 2023 and have plans for more in 2024.
- The Supreme Court ruling on adult-use legalization in Florida is supported by Cansortium.
- Expansion in Pennsylvania and Texas is underway, with a new Houston center opening planned for Q1 2025.
- The company's cultivation facilities in Florida are on track, with expected harvests at Ruskin and Rosa facilities.
- Cansortium has cash and cash equivalents of approximately $10.5 million and a total debt of $61.4 million as of December 31, 2023.
- A restatement impacted adjusted EBITDA by $6.7 million due to adjustments in the biological asset model, depreciation, and the ERTC claim.
Company Outlook
- Cansortium expects to continue its growth plans in 2024, focusing on expanding its footprint and delivering revenue growth.
- The company aims to open an additional four to six stores, targeting adult-use locations in high-value markets.
- Funding for cultivation projects has been secured, with the Ruskin facility already producing and the Rosa facility needing $6 million for Phase 1.
Bearish Highlights
- The company announced a restatement that negatively impacted adjusted EBITDA by $6.7 million.
Bullish Highlights
- Cansortium has sustained positive cash flow for the ninth consecutive quarter.
- The company is expanding its market share in Pennsylvania and is preparing for potential adult-use transitions in Florida.
- Patient growth and retail volume are increasing in Texas, with significant expansion plans in place.
Misses
- The company will not open more than 35 stores until the Ruskin facility is fully operational.
- Restatement adjustments have caused a significant impact on the reported earnings.
Q&A Highlights
- Cansortium discussed the restatement impact in detail, breaking down the $6.7 million adjustment by quarter.
- They expressed readiness to expand and capitalize on the capacity to grow, especially in light of the adult-use legalization in Florida and expansion opportunities in Pennsylvania and other Northeast and central states.
- The company is considering starting another facility in Williston to support the anticipated growth.
Cansortium Inc. remains focused on its strategic expansion and is poised to take advantage of the evolving cannabis market. With new facilities coming online and a strong presence in key states, the company is well-positioned to continue its trajectory of revenue growth and cash flow generation despite the setbacks from the restatement.
InvestingPro Insights
Cansortium Inc. has demonstrated resilience in its financial performance, with a notable revenue increase in the last quarter of 2023. The company's strategic initiatives are reflected in the revenue growth figures, showing a 15.39% increase over the last twelve months as of Q1 2023, with a gross profit margin of 44.28%. This growth momentum is aligned with their expansion plans and the opening of new dispensaries.
InvestingPro Data metrics reveal a market capitalization of $46.43 million, which, while modest, indicates the potential for growth in the burgeoning cannabis market. The company's revenue for the same period was reported at $95.21 million, signaling a solid financial base from which to drive future expansion.
InvestingPro Tips highlight the stock's recent performance, with a significant price uptick of 98.17% over the last six months, showcasing a strong market recovery and investor confidence. However, analysts suggest caution due to the stock's volatility and the fact that the company is not expected to be profitable this year.
For investors looking for more in-depth analysis and additional insights, InvestingPro offers a total of 12 InvestingPro Tips for Cansortium Inc., which can be explored further at https://www.investing.com/pro/CNTMF. To enhance your investment strategy, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - Cansortium (CNTMF) Q4 2023:
Operator: Good afternoon, ladies and gentlemen, and welcome to Cansortium's Fourth Quarter 2023 Conference Call. Joining us today are the company's CEO, Mr. Robert Beasley; and the company's CFO, Jeff Batliner. At this time, all participants are in a listen-only mode. After the company’s prepared remarks, the management team will conduct a question-and-answer session and conference call participants will be given instructions at that time. As a reminder, this conference call is being recorded and will be available for replay in the Investors section of the company's website at www.getfluent.com. Please note that certain subjects discussed on this call, including answers the company may provide to questions, may include content that is forward-looking in nature, and therefore, subject to risks and uncertainties and other factors, which could cause actual future results or performance to differ materially from any implied expectations. Such risks surrounding forward-looking statements are all outlined in detail within the company's regulatory filings, which can be found on sedar.com. The company does not undertake to update or revise any forward-looking statements, except to the extent required by applicable securities laws in Canada. In addition, during this call, the company will refer to supplemental non-IFRS accounting measures, including adjusted EBITDA, which do not have any standardized meaning prescribed by IFRS. As a final reminder on today's call, unless otherwise indicated, all dollar amounts are expressed in U.S. dollars. I would now like to turn the conference call over to Mr. Robert Beasley, the company's CEO. Sir, please go ahead.
Robert Beasley: Thank you, and good afternoon, everyone. We continue hitting key milestones during the fourth quarter, generating record revenue and posting our ninth consecutive quarter of positive cash flow from operations. These metrics reinforce both the consistency of our business and the execution of our strategic initiatives as we lay the foundation for Cansortium's future growth. We remain laser-focused on execution and cash flow generation. Jumping into our fourth quarter and recent highlights. In Florida, we grew revenue 10.8% in the state and continue to ramp the four dispensaries we opened during 2023. The additional headcount and marketing costs associated with these locations has partially impacted our bottom line as they ramp up. However, investment in our team and overall infrastructure are necessary to support our growth. We have opened two new dispensaries in Florida so far in 2024 and are carefully positioning our development of future facilities with an eye on the potential for adult-use as the market transitions in Florida. On the cultivation side, we continue to realize the benefit of investments made during 2023 with our flower quality seeing further improvement and our average THC percentage now exceeding 27% with many of our strains routinely exceeding 35%. Our improved product quality has enabled us to sustain higher pricing across virtually all product categories, including flower and baked cartridges. During 2023, we also released our first line of concentrates. Cured Sugar was the product of our first choice and our first rollout. And in 2024, we're looking forward to releasing additional concentrate lines and dabbable products. We've also made considerable improvements to our delivery devices, our product components and packaging that will help improve the patient experience. We saw some strength in the average basket size during Q4, which is partially driven by the higher average pricing, an encouraging sign as we move into 2024. It does appear that the pricing decline has arrested and is now starting to incline. I want to acknowledge the recent Supreme Court ruling, which allows the possibility of adult-use on the ballot in the fall. We remain focused on operating our business under the current regulatory framework, and we look forward to doing our part to help this measure pass the referendum. In the Pennsylvania market, we are rapidly expanding our preferential partnerships with wholesale suppliers, which has helped us remain price competitive in this market. During 2024, we look forward to expanding these relationships to further increase our local dispensary market share. We'll also expand our flagship dispensary at Hanover, which should go to its final inspection this week. This expansion will more than double the patient access area, the point-of-sale calendars in the storage space while improving the overall customer experience. At the market level, price trends in Pennsylvania have remained generally stable. Growth within the Pennsylvania market is largely coming from expanded product offerings, enhanced dispenser facilities and these additional wholesale partnerships previously described. Moving on to Texas. While this state remains in its infancy, we are continuing to see patient growth and increasing retail volume, albeit over a small base. This is a positive market signal ahead of our planned opening of the brick-and-mortar center here in Houston, which will also serve as an education center for doctors and patients in the area. We currently expect this education center to open by the first quarter of 2025. As a reminder, we are one of only three license holders in the state of Texas, and we’re actively working to grow our presence in what we view as a market with significant potential, although a small nascent market today. In 2024, we continue to implement and execute the objectives laid out in 2023 to improve our operations and drive profitable growth across our footprint. We will remain opportunistic in our approach to expanding our footprint and are poised to deliver another year of revenue growth and cash flow generation. On that front, our Ruskin facility in Florida is in full production with the first harvest expected in July, the new Rosa facility is under construction at what will be a high-quality flower facility, this is adjacent to our existing Tampa facility, and we expect the first harvest to come in Q4 from Rosa facility. I’ll now hand it over to the CFO, Jeff to walk through the financial highlights. Jeff, back to you.
Jeff Batliner: Thank you, Robert, and good afternoon, everyone. As Robert mentioned, we’re proud to report another period of revenue growth and our ninth consecutive quarter of positive cash flow from operations. Please note all figures are in U.S. dollars and all variance commentary is on a year-over-year basis, unless otherwise indicated. Revenue increased 9% in the fourth quarter to $25.5 million compared to $23.4 million in the year ago quarter. The increase is primarily related to additional dispensaries opened in Florida and higher patient counts. Operating expenses in the fourth quarter were $9.3 million compared to $7.8 million. This was attributable primarily to higher salaries and wages as well as increased sales and marketing costs related to our new dispensaries in Florida. As a percentage of revenue, operating expenses were 37% in the fourth quarter compared to 33% last year. Adjusted gross profit for the quarter was $12.6 million or 49.4% of revenue compared to $0.7 million or 3.1% of revenue. The change in gross margin was primarily related to the IAS 41 addendum adjustment made in 2022 as well as operational efficiencies and cultivation and production in the fourth quarter of 2023. Adjusted EBITDA for the quarter was $6.9 million compared to $7.9 million, with the decrease primarily attributable to additional salaries and wages. The additional salaries and wages were driven by additional employees to support our dispensary growth. Cash from operations during the fourth quarter was $1.4 million compared to $3.6 million in the prior period. For the full year, revenue increased 11% to $97.3 million compared to $87.7 million in 2022. The increase is primarily related to additional dispensaries opened in Florida and higher patient counts. Operating expenses for 2023 were $38.3 million compared to $33.1 million, with the increase primarily attributable to increased headcount to support our new store growth. Adjusted gross profit for the full year was $49.5 million or 50.9% of revenue compared to $44 million or 50.1% of revenue in the prior year. The increase in gross margin was primarily related to improved cultivation and production efficiencies as the company increases output. Adjusted EBITDA for 2023 was $27.2 million compared to $25 million with the increase primarily attributable to higher revenue on increased customer transactions, slightly offset by higher SG&A due to the additional dispensary locations. Cash from operations during 2023 was $18.5 million compared to $19.1 million in the prior year. In December or on December 31st of 2023, we had approximately $10.5 million of cash and cash equivalents, $61.4 million of total debt, with approximately 300 million shares outstanding. We also announced today that our year-end audit revealed the need for us to make adjustments to our earnings and the magnitude of those adjustments were such that require the restatement to spread the impact across the first three quarters of 2023. These items are broken down in the following three buckets. The first is related to our biological asset model, where we found process errors around beginning balances, which resulted in a misclassification of expenses between COGS and realized fair value of inventory. This does not impact net income, but it does impact adjusted EBITDA. The total impact is $6.7 million, and the quarter is impacted on the first quarters in 2023. The second item is a misclassification of depreciation, which resulted in $2.4 million of depreciation booked to SG&A rather than to COGS during the second and third quarters of 2023. There is no impact to net income or adjusted EBITDA for this item. The last item is related to our ERTC claim, and this is generally unrelated to the classification of the transaction, where we previously monetized our outstanding ERTC claim with a third party. However, given the uncertainty around the ERTC program in general and what the actions of the IRS ultimately will be regarding this program, we have removed $3.4 million of income for the third quarter. This impacts our net income but not our adjusted EBITDA, as this was a nonrecurring item that was excluded from the adjusted EBITDA calculation. This concludes our financial highlights. Operator, we will now open the call for Q&A.
Operator: Thank you. [Operator Instructions] The first question comes from Russell Stanley of Beacon Securities. Please go ahead.
Russell Stanley: Good afternoon. Thank you for taking my question. My first relates to your retail expansion plans in Florida. You're now at 34 – 35 stores, pardon me, and I think you were in balance pre-Ruskin and pre the additional capacity there. So just wondering how many additional stores you expect to support with Ruskin and Rosa and how you're thinking about the timing of the associated store openings given the potential for adult use legalization.
Robert Beasley: Thank, Russ, and it was good chatting with you at [indiscernible] recently. We are in balance. We calculated 35 stores to 37 stores would be our carrying capacity at the then current rate of sales. I chose 35% of that range, and we are at 35%. A good problem to have is that our sales rate has exceeded those calculations done last year or year and half ago. And so we're in balance now at 35 stores, what I would call over the period of the year. Of course, everyone who grows cannabis knows that the cultivation output is fluctuating throughout the year. And so we do have the summer periods, which impact our facilities. And so we are not putting on additional stores until Ruskin comes full online, because we need the buffer. Now once Ruskin comes online, which is – its first crop, as I said, will be out mid-summer, that will give us a good solid buffer so that we keep a good solid inventory metrics going. At that time, then Rosa should follow by the end of Q4, by the end of this period of time in 2024. And at that time, we're going to start putting on additional stores. I calculate to answer your question between Ruskin, which gives us the additional buffer we need and Rosa. We will provide for an additional four stores to six stores given my recent experience on increased sales, I'm going to pick four of that number. And then, of course, your second part of your question was the location of those stores. If you follow that time period and follow what may or may not happen with the petition and the vote come in November, we may very well be looking at a scenario where that ballot initiative passes. And so those next four stores to six stores will be located with an adult-use parameter in mind. This is a different location criteria than we've previously been using. We've previously been covering the map, if you would. We have now entered a period where we're going back into those A markets. Our product quality exceeds that of our competitors at this point. So we're able to stay in toe-to-toe with anyone in the market. And so I don't mind locating a block and half down the road from Trulieve or anyone else because I think our product will stand up to it. And so we're going to go back and look at those eight markets. We're going to look at where we anticipated adult-use to bring – drive the sales. And that's the location of those next four stores to six stores.
Russell Stanley: That's great color. And just on the cultivation projects, both the one expected first harvest July and Rosa later in the year. I guess can you talk to what your CapEx expectations are in 2024 and how you envision funding them?
Robert Beasley: Sure. Ruskin is paid for. It's in production. Obviously, these facilities always need a small stream of CapEx continuously. Rosa, we're expecting about $6 million to get us into the Phase 1. We've secured that funding and we're ready to go and deploy. The same holds up on Rosa right now was the power, working with our municipal power company there. We need to move the power situation so we can pull the permits. We should have that move any day now. The building has been completed, reroofed, ready to go, but we can't start forward construction on the elements which require these power needs until we get the power provided to the building. But we're funded plans are set ready to go. We just need to get cleared with the power company.
Russell Stanley: That's great. And if I could one question around the restatement and specifically the bio acid impact to adjusted EBITDA, I think it was $6.7 million in total. Can you provide any color as to how that breaks down by those three quarters?
Robert Beasley: Jeff is going to have those by the quarters. Let me give you an overview. If you recall, and I know you do because you've covered us for a while, we did an adjustment in Q4 of 2022 related to this exact same issue. And then that adjustment following into Q1 of this year resulted in a continuing stream of adjustments. I've been told we're one of the last cannabis companies still reporting under IFRS, and we need to convert the gap. And I think this drives the message home more than anything that we need to get away from this reporting scenario and get into a GAAP reporting. But Jeff, can you give you the layout of how the $6.7 million is broke down.
Jeff Batliner: Sure. Russell, it was $3.8 million in the first quarter, $1.8 million in the second quarter and $1.1 million in the third quarter.
Russell Stanley: That's great. And maybe one last question, and I'll get back in the queue. Just wondering what your latest thoughts are outside of your existing three markets. You've talked about some other markets in the Southeast in the past. But given the renewed or I'd say, improved odds for adult-use in Florida as well as what you've got going on in PA in Texas at this point. I'm wondering if you plan to focus on your current three for now or if you're still evaluating opportunities outside of them? Thank you.
Robert Beasley: We're still evaluating where we are in PA. We're very happy with the performance of those stores. As I've noted, those stores have continued to increase revenue and margins. But they're just three stores. And we're looking for a breakout opportunity in Pennsylvania. We're looking for an opportunity to go vertical, hoping that the transition to adult-use in Pennsylvania gives more opportunities. There's one license here, one license there. We've got to figure out a way to make a substantial growth step. And so continuing to look for opportunities in Pennsylvania, also looking for other complementary footprints in the Northeast and in the central part of the states. We're ready to expand. We have the bandwidth and the ability our team is nimble and efficient and are really good operators. And so we're ready to go into another market. Florida going into adult-use, does cause us a little bit more work in Florida now. As everyone has heard previously, we have another facility kind of in the works, if you would, and it's a much bigger facility. And it's kind of been holding for the adult-use transition. And so that's the Williston Florida opportunity. I've talked about it before. And so we will have to put some effort towards starting another facility probably right on the heels of Rosa because we'll know by then whether the petition passed. But other than that, we have plenty of bandwidth. We're looking for that opportunity. We just got to find that right combination and grow smartly. And so we continue to look.
Russell Stanley: That's great. Thanks for the color. I'll get back in the queue.
Robert Beasley: Thank you, Russ.
Operator: Thank you. This concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.