Operator: Greetings and welcome to the Schwazze, formerly Medicine Man Technologies, Company Update and First Quarter 2020 Conference Call and Webcast. This conference call and webcast is being hosted by Chief Executive Officer, Justin Dye; and Chief Financial Officer, Nancy Huber. Following the formal presentation, management will take questions submitted via the web link found on the company's Investor Relations website and in the earnings press release.

I would like to remind you that management's prepared remarks and answers to your submitted questions may contain forward-looking statements, which are subject to risks and uncertainties. The words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project and similar expressions as they relate to Schwazze are as such, a forward-looking statement. Investors are cautioned that all forward-looking statements involve risks and uncertainties that may cause actual results to differ from those anticipated by Schwazze at this time. In addition, other risks are more fully described in Schwazze's public filings with the U.S. Securities and Exchange Commission, which can be viewed at www.sec.gov.

During management's prepared remarks and then answering investor questions, there will also be a discussion of potential acquisitions. These acquisitions are conditioned upon the satisfaction or mutual waiver of certain closing conditions, including but not limited to, regulatory approval relating to all applicable filings and expiration or early termination of any applicable waiting periods; regulatory approval of the Marijuana Enforcement Division and applicable local licensing authority approval; receipt of all material necessary; third-party consents and approvals; each party's compliance in all material respects with the respective obligations under the term sheet; a tax structure that is satisfactory to both the company and the targets; the execution of leases and employment agreements that are mutually acceptable to each party; and the execution of definitive agreements between the respective parties.

I would now like to turn the call over to Executive Chairman and Chief Executive Officer, Justin Dye. Please go ahead.

Justin Dye: Good afternoon, and thank you for joining us. Let me begin with an update related to COVID-19 before turning your attention to other matters. First and foremost, we're keeping all of the health care professionals, frontline service workers and essential businesses and people that have been most affected by this pandemic in our thoughts. We have also been doing our part to slow down the spread of the virus, ensure the safety of our employees and protect the health and well-being of the communities in which we operate.

Since the beginning of the pandemic, we quickly put in place enhanced safety measures, including: closely and consistently monitoring daily updates and recommendations from the Center for Disease Control and Prevention, the CDC, the World Health organization and the Colorado Department of Public Health and Environment to ensure we are communicating accurately to our entire workforce; added CDC recommended cleaning measures, targeting high-traffic areas to our current cleaning protocol at all of our business segments, including our retail operation, The Big Tomato; provided our employees antibacterial sanitizers, masks, gloves and other supplies.

We've enabled flexible scheduling and on-site maximums for those returning to the workplace over time, created policies to ensure understanding about social distancing required where on-site employee responsibilities and safe behaviors, established a company-wide emergency response plan to outline procedures if an employee becomes ill or display symptoms for the virus. Above all, we've still been operating and ensuring we are meeting the needs of our customers while also implementing measures to ensure our employees are safe and healthy.

During this time, we've also collaborated with state and local governments to develop and implement rules and regulations for the cannabis industry throughout Colorado specific to COVID-19. Throughout the COVID-19 pandemic, emergency rules and regulations for Colorado cannabis operations have changed.

To help Colorado consumers find information and updates on the dispensary operations of our strategic partners, we launched a collective online platform to bring together their ordering capabilities under 1 marketplace. This has enabled consumers to fulfill their cannabis needs in a manner that was not possible before, and we thank our strategic partners for their commitment to supporting cannabis consumers.

In terms of the big picture, we think it's simply incredible that what was once illegal in the state of Colorado is now considered an essential business that has been allowed to remain open, subject to certain provisions.

And as I also mentioned a few weeks ago, our last conference call, we and others think the need for more state and federal tax revenue can serve as a catalyst to further liberalize cannabis over the long term. We think this is true even if there are delays in the short term, as government and other resources are channeled towards fighting the pandemic and dealing with its immediate aftermath.

Still, cannabis will likely prove defensive in the face of an economic downturn and as restrictions are lifted. We also believe that cannabis also has the potential to provide growth as users are likely to sacrifice other activities during periods of economic stress to maintain their consumption.

As the pandemic began to unfold domestically and as we expressed on our March 30 conference call, we experienced a spike of orders from our hydroponic store, The Big Tomato, and from our nutrient line, Success Nutrients, in the last 2 weeks of March. The sales uptick is now reflected in our first quarter revenues. While these purchases could be considered an increase in demand in the first quarter, we maintain that our teams can pull the levers needed to ensure we remain stable during this time of uncertainty.

Now let's turn to the business itself. On 4/20, a significant day in the cannabis industry, we announced that Medicine Man Technologies, Inc. will now be doing business as Schwazze. The new branding is a node to the schwazzing cultivation technique, part of the Three a Light methodology. This technique, created by our Chief Cultivation Officer, Josh Haupt, is an innovative method. Pruning of a living organism to create more growth. For Schwazze as an organization, it is a call to action for innovation and unparalleled thinking and creating the next era of cannabis growth.

Our new brand is also a logical extension of the transformation that we are going through. We knew it was important to align who we are more closely with where we were headed. And accomplish this by pulling together the human element, the plan element in the company that we're building in a thoughtful way. Over the last several months, a cross-functional team worked to define who we are and how our brand links to everything that we do. As part of this process, we looked inward into our acquisition partners to ensure we created a culture that was meaningful.

To learn more about our new brand and defined culture, you're encouraged to visit our website. There, you will discover our comprehensive story, which includes our new purpose, mission statement, vision statement and core values. Additionally, you will learn more about the best-in-class team we've assembled, which collectively possesses Fortune 500 experience and the cannabis know-how.

Our new website, the online marketplace I referenced earlier and new social platforms launched with our new brand are the first phase of our omnichannel approach that we're building out. These forums will become our place to provide a view into our growing company and share more company-wide updates.

Additionally, as a reminder, we are now trading on the OTCQX as SHWZ, short for Schwazze. Schwazze is more than just the new brand. It's about translating how we bring it all to life. The new branding reflects the company's goal to create a dynamic, innovative culture and brand identity while inspiring a call to action to innovate, grow and nurture plants, products, experiences, and the environment to benefit the human experience.

I was also honored to celebrate my first 4/20 in the industry with our announcement that we were the first publicly traded company in Colorado to have closed on a cannabis operator, Mesa Organics. This inaugural transaction is a strategic fit for us and marks the first of our previously announced pending acquisitions with established and proven cannabis companies.

Mesa Organics operates 4 dispensaries throughout Southern Colorado in Pueblo, Ordway, Rocky Ford and Los Animas. It also operates as Purplebees, a leading pure CO2 and ethanol extractor, manufacturer of cannabis distillate and a white label producer for leading cannabis brands across the state. Mesa Organics and Purplebees adds to the company's strong foundation of leadership with knowledgeable and passionate employees, manufacturing expertise and robust retail operations. Under the terms of the agreement, the purchase consideration was approximately $2.6 million in cash and approximately $2.6 million in shares of common stock, subject to certain holdback and adjustment provisions.

This transaction, of course, is but 1 step in bringing together industry leaders to establish a broader, more efficient cannabis platform, supported by the highest standards of quality and service from the best talent in the industry. We remain aggressively focused on our outlined acquisition strategy, which will enable the company to become 1 of the largest vertically integrated cannabis operators in the U.S.

Under Schwazze, we are excited to create a robust house of brands with a portfolio consisting of: wholesale, which includes cultivation, manufacturing and branded infused products; retail, which includes dispensary operations, a top-tier nutrient line and hydroponic supplies and much more. I'm confident that we can deliver on our aggressive growth strategy, leading the consolidation growth of cannabis starting in Colorado and then the rest of the U.S. before ultimately becoming a worldwide leader in the industry.

And while we're making great progress on our outlined acquisition strategy, I would be remiss if I didn't provide an update related to our recent SEC filing regarding Strawberry Fields. The binding term sheet for this cannabis operator has ended. We will continue to evaluate this opportunity as we move forward.

With that said, we remain confident in the organic and inorganic opportunities that lie ahead of us. We have a strong M&A and real estate growth mentality and infrastructure to provide us a pipeline of opportunities in the marketplace. While we're laser-focused on closing on our remaining acquisition partners, we're continuing to explore additional acquisitions and partnerships that will bring value and strengthen the platform that we're building.

Our confidence is also based on all of our hard work to date, building strong agile infrastructure that will support our growth initiatives. Specifically, we have been laser-focused on finalizing diligence and integration planning with our acquisition partners, deploying our operating playbook in implementing our new enterprise ERP platform. With these considerations in mind, 2020 is poised to be a milestone year for all of our stakeholders, our communities and above all cannabis consumers.

Briefly on our first quarter performance, we were certainly very pleased. As you can see from our results, we experienced robust top line growth and more than doubled our gross profit compared to last year. We also significantly narrowed our net loss despite minimal investments in our business as we prepare for the future and work tirelessly to execute on our strategy.

Let me now turn the call over to our CFO, Nancy Huber, to review our first quarter in greater detail.

Nancy Huber: Thank you, Justin, and let me echo your sentiments regarding the first quarter as we generated very encouraging results.

Revenues were $3.2 million, a 60% increase over the same period last year of $2 million. Notably, product sales rose nearly 64%, which we attribute to an increase in the number of customers and some consumer stockpiling due to COVID-19, while consulting and licensing fees rose 46% due to the addition of a new customer.

Cost of goods and services totaled $2.1 million compared to $1.6 million in the year ago period. This 34% increase was due primarily to increased sales of products along with increased salaries and related employment costs.

Gross profit was $1.1 million compared to $0.4 million for the first quarter last year. Gross profit increased to 33% of revenues from 20% of revenues during the same period in 2019.

Operating expenses were $5.2 million compared to $2.6 million in the same period last year. The increase was primarily attributable to higher salaries, SG&A, and noncash stock-based compensation associated with activities related to building infrastructure and ensuring a seamless integration of our numerous pending acquisitions.

We have built a robust platform, including teams for M&A, integration, marketing and merchandising, FP&A, IT, HR and more, which will allow us to close our acquisitions and integrate them quickly. This platform is an investment for our future and will enable sustainable, organic growth and acquisition growth for the future.

Net other income totaled $2.7 million compared to net other expenses of $0.7 million for the first quarter last year. This represented an improvement of $3.4 million. This increase in other income was primarily due to the forfeiture of contingent consideration in relation to the resignation of an officer and director and an unrealized gain recognized on the change in fair value of certain derivative liabilities.

Net loss for the quarter was $1.4 million or a loss $0.03 per share on a basic and diluted weighted average compared to a net loss of $2.9 million or $0.10 per share for the year ago period.

We had $9.1 million classified as cash and cash equivalents as of March 31, 2020, compared to $0.7 million on March 31, 2019. We continue to review our cash needs as we navigate through this pandemic. We also have contingency plans in place, we believe will be effective should we need additional cash resources.

We will also likely need to raise additional capital to fund the acquisitions on which we have entered into binding term sheets and may explore capital raising transactions in the form of debt, equity or both. We cannot state with certainty today how much additional capital we may need and have no commitment from any investor or investment banking firm to provide us with any funding.

However, upon successful completion of our planned acquisitions, we believe we will generate positive cash flow from operations, and we expect that we will not need to raise additional capital to execute the ongoing business operations. We expect the revenue generated from fully integrated acquisitions will be sufficient to allow us to implement the current business operations.

Now I'd like to hand the call back over to Justin for his closing comments.

Justin Dye: Thanks, Nancy. Finally, I know and understand how COVID-19 is causing uncertainty across the country in many industries. I would like to reinforce that during this pandemic, we were not only able to launch our new corporate brand, Schwazze, but we were also able to close our first deal on schedule, a rarity during these economic times.

Additionally, while we're not offering guidance, I would like to provide a high-level overview of how we're tracking for April because of the environment in which we're operating in today. I'm happy to share that April continues to trend positively for the company.

Product sales from Success Nutrients and The Big Tomato were higher than April of 2019. And while our consulting services sales are lower than prior year, a portion of this revenue is derived from in-person training, much of which has been delayed due to COVID-19. As such, we're evaluating tools and offerings to ensure we are meeting the needs of our clients.

The company additionally had new revenue streams for 10 days of April with our inaugural acquisition. Mesa Organics sales increased year-over-year with the expansion of dispensary locations. Additionally, Purplebees' manufacturing extraction facility saw an increase in sales year-over-year with product expansion and white labeling opportunities.

Overall, we're pleased at this time with how we are trending during the second quarter. We remain confident that we will make great strides in our outlined acquisition strategy this quarter. And as we continue to close on those acquisitions, we anticipate our cash flow to improve. Additionally, as noted in my remarks earlier, being deemed an essential business during COVID-19 has enabled not only our industry to thrive, but the company to continue to make significant progress.

In closing, at Schwazze, we are creating something new and exciting by building a company that is positioned to become a market leader not only in Colorado, but across the nation. This will be accomplished by increasing the collective efficiencies of our brands that we intend to acquire, along with their profit margin over time.

While we continue to see growth across the industry, supported by being named an essential industry, we do believe there will be further opportunities for consolidation. Our team has the talent and vision to bring together experienced cannabis industry pioneers and the leading brands that they have created into a single publicly traded organization. We are fully aligned, incentivized and passionate about our long-term potential.

Over the past year, we've methodically prepared for the closing of our named acquisitions by building the necessary infrastructure so that we are ready to go on day 1 to promote strong performance and operating excellence. This will best position us to drive sustainable EBITDA and long-term success. We've closed 1 already and have more to come over the coming weeks and months. Our future is bright and full of possibility.

With that, let me conclude by thanking our investors for their continued support and express my enthusiasm for sharing further updates on our progress as appropriate, but for now, we would be happy to take your questions. To ask a question, please click on the link on the Investor Relations portion of our website and submit.

Raquel Fuentes: Thank you, Justin. Now begins our Q&A section. We'll start with the first question for you, Justin. What happened with Strawberry Fields? Are you looking to replace it or instead focus exclusively on closing the other transactions you have already announced?

Justin Dye: Thank you, Raquel. Good question. As I mentioned during some of my remarks before, the binding term sheet has ended with Strawberry Fields. We will continue to evaluate the opportunity. With that said, we do remain confident with our organic and inorganic opportunities for growth that lie ahead of us. We've got a great M&A real estate team. We've got a strong growth mentality. And the infrastructure we're building will size and scale up as these opportunities present themselves in the marketplace. While we're certainly laser-focused on closing the remaining acquisition partners, we are continuing to explore additional acquisitions that fit strategically, that will bring value and will continue to strengthen the company as we move forward.

Raquel Fuentes: Thank you, Justin. The next question that comes in is for Nancy. With Strawberry Fields no longer part of the combined company, what will your new footprint and revenue EBITDA now look like?

Nancy Huber: Without Strawberry Fields, we'll have 30 dispensaries, 12 cultivation sites and 4 manufacturing facilities. And we've given some historical information prior in terms of what the 2019 pro forma would look like. Without Strawberry Fields, that number is $129 million in revenue. The EBITDA target remains the same with 20% to 30%.

Raquel Fuentes: Great. Thank you, Nancy. The next question is for you again, Nancy. If the last 2 weeks of March involved high demand due to COVID and it bolstered your revenue in Q1, is it reasonable to assume that it will continue into April?

Nancy Huber: So Justin talked a little bit about this, there was an increase in demand, and we did see that begin to unfold in March. We've brought on new customers, however, as well. So that's had a big impact in The Big Tomato and Success Nutrients. And we believe that will continue to increase with year-over-year sales. Our teams, our sales teams are really focused on pulling the appropriate levers to keep us on track and achieve sustainable progress as we move forward.

Raquel Fuentes: Great. Thank you, Nancy. The next question that we have come in is for Justin. Justin, do you think that any new customers have actually been brought into the industry over the past few months? Or has the stay-at-home ordinances impacted that or -- and more unusual means to get the product, i.e., curbside attracting new customers?

Justin Dye: So we continue to see new customers entering the industry and consuming cannabis. With this pandemic, we believe the trend continues as our industry is seen as a comfort during times of stress and anxiety that COVID-19 maybe introducing. Because rules and regulations have been put in place throughout this pandemic, our dispensary partners have been able to introduce new omnichannel services to consumers, which also allow us to reach even more consumers. So we continue to see good solid growth, and our customer base continue to expand.

Raquel Fuentes: Great. Thank you, Justin. Another question for you, Justin. What can you tell us about the performance of your pending transaction during Q1?

Justin Dye: Yes. Thanks, Raquel. I can't go into a great amount of detail about the pending transactions' performance as they're privately held companies and we've not closed them -- closed on them as of yet. I can share that I think anecdotally, most, if not all of them are up, their sales are up year-over-year and have seen strong growth. As mentioned during my prepared remarks, we believe that being deemed an essential business in Colorado has enabled the strong operators, such as our acquisition partners, to quickly and efficiently meet the needs of the market and our consumers across the state.

Raquel Fuentes: Great. Thank you, Justin. An additional question for you. So has your timetable for closing other transactions changed since the year-end conference call?

Justin Dye: I'm really proud of our team, the team that is executing very well, has really continued to execute during this pandemic with new working routines, et cetera. The team has done a great job. We continue to be on track. We feel very comfortable with our targets. We've got good news coming in the weeks and months to come as we continue to close our deals and feel very good about our execution on the transaction pipeline. Thank you.

Raquel Fuentes: Thank you, Justin. Nancy, an additional question for you. Should we assume that the terms, the combination of cash and stock the Mesa Organics transaction will be a model for others?

Nancy Huber: Thanks, Raquel. While we can't release specifics on the deals until we actually have closed them, I think using the terms of the Mesa Organics transaction, which is a combination of cash and stock, is a model that we are using for our additional transactions.

Raquel Fuentes: Great. Thank you, Nancy. We've got time for 1 more question, and I'll direct it to Justin. So once you're done, feel free to step up. But the final question is, Justin, is the infrastructure you're building based on becoming the largest operator in Colorado? Or is it designed to facilitate Schwazze becoming a multistate operator and consolidator?

Justin Dye: Yes. Thanks, Raquel. Right now, we're focused on closing, integrating our acquisitions across the State of Colorado. That said, our proprietary playbook, our processes, organization structure, objectives, et cetera, certainly are repeatable outside of Colorado. We're building an infrastructure that will size and scale. And we'll scale outside the State of Colorado, if and when we choose to do that. So the operating model is flexible and our infrastructure will be flexible to grow. So really happy with our progress to date with regards to building out our IT systems, implementing our ERP system, putting the right people and the right processes in place. We're making great progress. Thank you.

Well, I'd like to thank everyone for your interest in Schwazze and for joining us today. We look forward to providing additional information on our business in the future. Thank you very much, and thank you for your support.