Gold Flora Corporation (PNK:GRAM) Q4 2023 Earnings Call Transcript

Gold Flora Corporation (PNK:GRAM) Q4 2023 Earnings Call Transcript April 8, 2024

Gold Flora Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, everyone. Welcome to Gold Flora’s Fourth Quarter and Full Year 2023 Conference Call for the Three Month and 12 Month periods ended December 31, 2023. Listeners are reminded that certain matters discussed in today’s conference call or answers that may be given to questions asked could constitute forward-looking statements that are subject to risks and uncertainties relating to Gold Flora’s future financial or business performance. Any such forward-looking information is based on certain assumptions and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information, including the risk factors detailed in Gold Flora’s continuous disclosure filings that can be accessed via the U.S. Securities and Exchange Commission website at www.sec.gov or SEDAR at www.sedar.com.

Forward-looking information provided in this call speaks only as of the date of this call and is based on the plans, beliefs, estimates, projections, expectations, opinions and assumptions of management as of today’s date. There can be no assurance that forward-looking information will be proved to be accurate and you should not be such a reliance on forward-looking information. Gold Flora undertakes no obligation to obtain such forward-looking information, whether as a result of new information, future events or otherwise except as expressly required by applicable law. In addition, during the course of this call, there may also be references to certain non-GAAP financial measures, including references to adjusted EBITDA and adjusted gross profit which do not have any standard meaning under GAAP and therefore may not be comparable to similar measures presented by other companies.

For more information about forward-looking information and non-GAAP financial measures, including a reconciliation of adjusted EBITDA to the most directly comparable GAAP measure, please refer to the company’s annual report on Form 10-K, including Management’s Discussion and Analysis available on the SEC’s website and SEDAR. I would like to remind everyone that this call is being recorded today, Monday, April 8, 2024. I will now hand the call over to Ms. Laurie Holcomb, Chief Executive Officer of Gold Flora. Please go ahead, Ms. Holcomb.

A closeup of an analytical scientist analyzing a medicinal cannabis derivative product in a laboratory.

Laurie Holcomb: Thank you, Operator, and thank you to everyone who’s joining us. During today’s call, I will provide a high level overview of our recent successes. Then I’ll turn the call over to Marshall Minor, our Chief Financial Officer, who will review our fourth quarter 2023 financial results in further detail. Following this, I will briefly discuss our strategic goals, then we’ll open the call for questions. Looking at the results, the work that we have completed to build a unique and differentiated platform consisting of our premier indoor cultivation, vertical operations and deep consumer insights is enabling us to extend our leadership position in California. We continuously evaluate every facet of our vertically integrated operations with a focus on delivering high quality, profitable revenue and eliminating unnecessary costs.

As an example, our focus resulted in the decision to sell one underperforming dispensary and close select distribution centers. Despite the short-term impact on revenue, this improved consolidated margins and profitability as fourth quarter results demonstrate. Our focus on profitable revenue and not just sales volume is a distinctive factor that separates us from operators more focused on bulk wholesale revenue and driving volume but not necessarily profitability. Ensuring our revenue is profitable and derived largely from our CPG operations, including owned brands and retail storefronts, further insulates us from third-party challenges and other operators often encounter. With this focus on quality revenue, gross profit is up 16% sequentially to $13.2 million or 46% gross margin and on an adjusted basis was $18.7 million or 66% adjusted gross margin.

Strong results when compared to some leading multi- and single-state operators. In line with our substantial improvement gross margin, we recorded positive adjusted EBITDA for Q4 2023. This milestone was achieved due to the optimization of our platform with a focus on cost savings, profitable revenue and margin capture across the value chain. In addition to optimizing our platform, we broadened our areas of strength and expertise. We grew our cultivation canopy, completing the buildout of our Desert Hot Springs campus and by reactivating cultivation in San Jose at our Caliva and Airfield Supply Company. These operations have come online swiftly with a small contribution in Q4 and are now helping drive 2024 performance since many of the first harvests were collected following the quarter and year end.

With the recent cultivation expansions, our active canopy footprint is now approximately 107,000 square feet and we estimate our annual flower production to be over 40,000 pounds when operating at full capacity utilization. Most of this high quality production will be used in our first-party CPG-branded products. Excess flower is sold by our bulk wholesale team profitably but at lower margins. With a minor impact on Q4, most additional revenue from the cultivation expansion will begin to be reflected in the first quarter of 2024. We view our premier indoor cultivation vertical operations as one of the biggest competitive advantages. With this platform, we can be nimble and quickly respond to opportunities gleaned from real-time consumer insights from our robust retail footprint.

Our industry-leading cultivation, manufacturing and distribution team enables us to respond quickly to opportunities in our fast-paced industry sector. A good example of this is a quick and successful build-out of our newest brand, Gramlin. We identified an area of growth and disruption in the market, and during Q4, our team rapidly built this new brand and designed it to appeal to high-volume customers that frequently purchase flower, vape and pre-roll lines. A highlight of this brand is that it uses multiple proprietary genetics, growing efficiently at our own cultivation platform on the same campus as our other CPG production facilities. Our vertical structure allows us to deliver high-quality products and unmatchable speed to market while still providing great value offerings for our consumers.

Gramlin launched during Q1 2024 and is now available at our first-party retail stores, as well as through our stately distribution operations across California. Looking at our distribution operations, we continue to grow our position with an 8% increase in the number of third-party dispensary accounts buying from stately. Lastly, turning to our retail footprint, we have centralized our marketing efforts across all of our locations to better leverage a heavy digital and in-store push. This has allowed us to be more efficient and maximize our return on marketing spend while still providing unique and differentiated offerings that are tailored to each market that we serve. In addition, this has helped us to create a deeper partnership with leading third-party brands to offer our consumer-based exclusive promotions, pricing and activations.

In November, we also opened our latest retail store located in Corona, California. This new King’s Crew dispensary houses our curated range of first-party brands, including a robust offering of our exclusive genetics grown in-house by Gold Flora, and has carefully selected third-party brands to meet a wide range of consumer preferences. Our attractive retail footprint and limited license jurisdictions and consumer-centric owned brands played a pivotal role in maintaining and growing our market share while the overall market space declined. While the market as a whole declined, we have been able to capture more customer attention and spend, demonstrating the resilience and long-term potential for a purpose-built company. We are incredibly proud of the speed and success we have achieved in integrating all of our operations following our merger in July.

This includes realizing and identifying significant synergies with approximately $30 million in annual cost savings. We substantially completed the work to combine our businesses into one strong and unified company by year-end, entering 2024 with a solid foundation for profitable growth. We built this difficult-to-replicate platform over many years, adding the necessary strategic pieces when the time was right. This has built an enterprise ready-to-win California. With our expertise, our truly vertical operations and our comprehensive infrastructure, we believe we have the right combination to enhance our leadership position and achieve our goal of positive cash flow generation in 2024. Now, I would like to turn the call over to Marshall, who will discuss the financial results of the quarter.

Thank you. Marshall?

Marshall Minor: Thank you, Laurie, and good afternoon, everyone. As a reminder, the results I’ll be going over today can be found in our financial statements and MD&A contained in our annual report on Form 10-K. All figures are in U.S. dollars. It should be noted that we are a U.S. registrant with the SEC, and as such, our financial statements are prepared on a U.S. GAAP basis. Revenue for the fourth quarter of 2023 was $28.4 million, compared to $32 million in Q3. Revenue for Q4 was comprised of $25.4 million of retail revenue and $3 million in wholesale revenue. As Laurie discussed, the sequential decline in revenue was a result of our strategic decision to close underperforming assets that were impacting profitability. Our first-party brand portfolio, which includes Cruisers, Gold Flora, Mirayo, Caliva, CURRENT, Monogram, Roll Bleezy, Jetfuel, Sword & Stoned and Aviation, represented approximately 22% of total retail revenue in Q4.

Gross profit in Q4 was $13.2 million with a 46% gross margin, a 16% improvement compared to $11.3 million with a 35% gross margin in Q3, respectively. Q4 adjusted gross profit, which excludes 280E adjustments to operating expenses, including depreciation and amortization, was $18.7 million with a 66% adjusted gross profit margin, compared to $16.8 million adjusted gross profit with a 53% adjusted gross profit margin for Q3, respectively. Q4 net income was a loss of $42 million, which included non-recurring and non-cash items, which are further detailed in our 10-K. And to reiterate Laurie’s earlier point, we achieved positive adjusted EBITDA on Q4, which came in around $105,000 for the quarter. We ended the year with a cash and cash equivalent of $22.5 million as of December 31, 2023.

With that, I would like to turn the call back over to Laurie.

Laurie Holcomb: Thank you, Marshall. Over the quarter and the year, we executed on several initiatives to further drive our platform to profitability and grow our role as a leader in California. This has strongly positioned us for future growth and to achieve our goal of positive cash flow generation in 2024. These actions have derisked our platform, ensuring that we have very minimal reliance on third-party operations and enhanced our margin capture at every step of the supply chain, ensuring we have reliable, high-quality supply, controlled costs, extraordinary product quality, and competitive pricing. Our vertically integrated, purpose-built operations give us the ability to succeed, while other operators are struggling in California or exiting the market due to their inability to compete and scale here.

2023 was a crucial year for us at Gold Flora and we’ve done the necessary work to start 2024 on an incredibly strong footing. With that, I would like to open the call to questions. Operator, please go ahead.

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