Vext Science, Inc. (CSE: VEXT) (OTCQX: VEXTF) announced its financial results for the second quarter ended June 30, 2024. Revenue increased slightly quarter-over-quarter to $8.4 million ($8.3 million), but fell below last year’s second quarter revenue of $9.1 million. The Company attributed the decrease in revenue to revenue declines in Arizona, offset by the inclusion of consolidated revenues from cultivation and processing in Ohio.
Vext’s net loss widened to $4.3 million from net income of $535,454 in the second quarter of the previous year. The company’s cash balance decreased from $8.7 million at the end of 2023 to $3.3 million at the end of June 2024.
On August 2, 2024, Vext announced that it had received operating permits for dual licensing of its cultivation and production facility and its operating dispensaries in Jackson and Columbus, Ohio. The Company also received approval from the Ohio Division of Cannabis Control to begin selling recreational cannabis on Tuesday, August 6, 2024.
CEO Eric Offenberger said, “Launching adult-use sales in Ohio after quarter-end is a major milestone for Vext. Over two years of preparation and operational experience in the state have positioned us well for this transition and we are pleased with the initial results. We view Ohio as one of the most promising adult-use markets in the U.S. and look forward to the opportunities it presents for both the state and Vext.”
Costs of expansion in Ohio
To establish operations in Ohio, Vext had to raise quite a bit of money. In late June 2024, Vext paid $5,238,179 as a down payment for the Big Perm Ohio dispensaries, which will be renamed Herbal Wellness Center Jeffersonville and Herbal Wellness Center Athens. The company is awaiting the transfer of the licenses by the State of Ohio, which is expected to occur in late 2024. Included in this down payment was a $2.7 million down payment on the purchase price and $2 million was advanced toward the construction costs of the dispensaries.
A change in contracting parties in Ohio reduced the price from $9.4 million to $7.7 million. The contract is subject to regulatory approval by the Ohio Board of Pharmacy. The company said it will pay about $3.4 million of the construction costs for the pharmacies.
Offenberger continued, “The first half of the year continued to be challenging for consumer-facing companies, regardless of industry and geographic concentration. For the remainder of 2024, we expect improved performance through our focus on seamlessly transitioning our Ohio pharmacies to serve both the medical and adult-use markets, increasing the efficiency of our Arizona operations, and exploring growth opportunities across our service area, which we expect will result in increasing cash flow and solid long-term returns for our shareholders.”
Arizona’s weakness
Vext told investors that there were 168 active dispensaries in Arizona in June 2024, up from 148 in 2023. The company noted in its filing that this represents an increase of +13.5%. Using available data from the state of Arizona, the average pharmacy had net revenue of $557,094 in May 2024, up from $814,968 in May 2023. This represents an average decrease of (31.6%) per pharmacy.
The company also said there is excess cultivation capacity and surplus brands and products in Arizona, which continues to put pressure on prices and increase the share of proprietary products sold in dispensaries as operators work to improve supply and maintain margins.
