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Q & A Highlights

Q: Can you discuss the broader market dynamics in your categories for 2025 and when you expect the oversupply in the channel to be resolved? A: B. John Lindeman, CEO: The market saw optimism in early 2024 due to potential regulatory changes, which spurred spending. However, expectations were reset with political changes and unmet legislative actions. We might see growth in the second half of 2025, possibly aided by increased US border security affecting cannabis pricing. Internally, we expect double-digit sales declines early in the year, moderating later. Our focus remains on improving proprietary brand mix, diversifying revenue streams, and optimizing distribution to enhance free cash flow.

Q: What incremental benefits can we expect from your cost-cutting initiatives in 2025? A: B. John Lindeman, CEO: We plan to optimize our distribution center network, potentially through sublease and third-party logistics, and further consolidate facilities. We have identified $2-3 million in SG&A savings and expect productivity gains from last year's manufacturing consolidations. These actions should positively impact inventory levels and working capital.

Q: How might tariffs and regulatory changes impact your business? A: B. John Lindeman, CEO: Tariffs are a concern, but we plan to pass incremental costs to customers. We are a net importer from Canada, and about 5% of our sales come from there. We also source from China, where tariffs have been in place. We maintain higher inventory levels due to longer lead times from China, but we intend to pass along costs and adjust pricing models as needed.

Q: Can you elaborate on your M&A strategy and what you are looking for in potential acquisitions or partnerships? A: B. John Lindeman, CEO: We are open to strategic combinations or acquisitions that enhance shareholder value, diversify our geographic presence, or expand beyond the cannabis space. We are also considering divesting attractive assets. Consolidation could benefit the industry and our shareholders under the right conditions.

Q: What are your expectations for the financial performance in 2025? A: Kevin O'Brien, CFO: We anticipate a 10-20% decline in net sales compared to 2024 but expect improved adjusted gross profit margins due to a better proprietary brand mix and cost-saving initiatives. Adjusted EBITDA is expected to be negative but better than 2024. We aim to reduce SG&A further and improve free cash flow through inventory reductions and working capital management.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.