Vext Science leans into Ohio for expansion as Arizona faces pressure

Vext Science, Inc. (CSE: VEXT) (OTCQX: VEXTF) reported its financial results for the second quarter ending June 30, 2024. Revenue grew slightly sequentially to $8.4 million over the first quarter’s $8.3 million but fell below last year’s second-quarter revenue of $9.1 million. The company attributed the decline in sales to declines in Arizona revenue offset by the inclusion of consolidated Ohio cultivation & processing revenue.

Vext’s net loss grew to $4.3 million versus last year’s second-quarter net income of $535,454. The company’s cash level plunged 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 secured Certificates of Operation for the dual licensing of its cultivation and manufacturing facility as well as its operated dispensaries in Jackson and Columbus Ohio. The company also received approval from the Ohio Division of Cannabis Control to begin selling adult-use cannabis on Tuesday, August 6, 2024.

CEO Eric Offenberger said, “The launch of adult-use sales in Ohio after quarter-end marks a significant milestone for Vext. Over two years of preparation and operational experience in the state have positioned us well for this transition and we’re 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.”

In order to get the Ohio businesses established, Vext had to put out quite a bit of cash. At the end of June 2024, Vext paid $5,238,179 as a deposit on the Ohio dispensaries, Big Perm, to be renamed Herbal Wellness Center Jeffersonville and Herbal Wellness Center Athens. The company is waiting for the transfer of the licenses by the State of Ohio which is projected to be by the end of 2024. Included in this deposit was a $2.7 million advance payment of the purchase price and $2 million was advanced for construction costs related to the dispensaries.

An amendment by the parties in the Ohio deal reduced the price from $9.4 million to $7.7 million. It is subject to regulatory approval by the Ohio Board of Pharmacy, the company said it will fund approximately $3.4 million of construction costs related to the dispensaries.

Offenberger continued saying, “The first half of the year continued to present challenges for consumer-facing companies, regardless of sector and geographic concentration. For the remainder of 2024, we anticipate improved performance through our focus on seamlessly transitioning our Ohio dispensaries to serve both medical and adult-use markets, enhancing efficiency in our Arizona operations, and exploring growth opportunities across our footprint, which we expect will lead to increasing cash flow, and solid long-term returns for our shareholders.”

Vext told investors that as of June 2024, there were 168 operating dispensaries in Arizona versus in 2023 there were 148 operating dispensaries. The company noted in its filing that this represented an increase of +13.5% and using available data from the State of Arizona, the average dispensary in May 2024 had net sales of $557,094 compared to $814,968 in May 2023. This represented a decrease of (31.6%) on an average per dispensary basis.

The company also said that there is excess cultivation capacity and concentrate brands and products in Arizona, which continue to put downward pressure on pricing and increase the proportion of in-house products sold on dispensary shelves as operators work to improve the mix and preserve margin.