Outperforming a Difficult Nevada Market
CLS Holdings is a vertically integrated cannabis company with core operations in Nevada. The company owns and operates Oasis cannabis dispensary, one of the leading stores in Las Vegas. CLS also has a state-of-the art extraction and manufacturing facility in Nevada and a suite of top-performing brands. CLS reported 3QFY24 earnings that outperformed a difficult cannabis climate in Nevada. State cannabis sales for December and January were down 10.7% Y/Y. Nevada has not published February data. CLS reported quarterly revenue of $4.9 million, a 5.2% sequential decline and a 9.4% reduction Y/Y. The main drivers of the decline were continued inflation, stimulus running its course, smaller tax refunds, and a thriving legacy market that does not face the same burdensome taxes as legal operators. Dispensary traffic and average basket sizes were both down this quarter. Gross margins in 3Q were 43.1%, a 1.4% improvement sequentially and -4.0% change Y/Y. Importantly, the company achieved $588,850 in cash flow from operations for the nine months ending February 29, 2024, a 158% improvement Y/Y. Adjusted EBITDA of -$273,065 increased 1.3% Q/Q and fell 151.8% Y/Y. The current quarter was affected by a one-time $3.4 million loss on extinguishment of debt. Adjusted EBITDA margins of -5.5% fell 0.3% sequentially and -15.2% Y/Y. During the quarter, CLS launched its City Trees line of vapor cartridges in the New York adult-use market and New Mexico. The company is also making progress on its consumption lounge project in Nevada and hopes to open it in late 2024. CLS also restructured its debt during the quarter to lower borrowing costs and reduce shares outstanding. The transaction reduced borrowing costs by 8.5% and eliminated 9.5% of the issued and outstanding shares. Total debt has decreased from $23.0 million to $6.9 million in the past two years. Leaner operations, lower interest expenses, and asset-light expansion into new markets are helping CLS compete during this challenging period. More scale in Nevada may also be helpful and the company continues to evaluate opportunities to expand its retail presence.
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