Michael Salaman - President & Co-Founder Darren Lampert - CEO & Co-Founder Monty Lamirato - Chief Financial Officer

Good afternoon. My name Joana and I will be your conference operator today. At this time, I would like to welcome everyone to the GrowGeneration Corp. Second 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Michael Salaman, President of GrowGeneration Corp. You may begin your conference.

Thank you. Good afternoon. My name is Michael Salaman, Co-Founder and President of GrowGeneration Corp. At this time, I would like to welcome everyone to our GrowGeneration Corp. second quarter 2018 earnings conference call. After our CEO and CFO’s remarks, we will make some comments and answer a few questions. Prior to me turning the call over to our CEO, I would like to read our forward-looking statements. This earnings call may include predictions, estimates and other information that might be considered forward-looking within the meaning of applicable security laws. While these forward-looking statements represent our current judgments, they are subject to risks and uncertainties that could cause actual results to differ materially. You are caution not to place undue reliance on these forward-looking statements, which reflect our opinions only as the date of this call. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. When used herein, words such as look forward, believe, continue, building, or variations of such words and similar expressions are intended to identify forward-looking statements. Factors that could cause actual results to differ materially from those contemplated in any forward-looking statements made by us herein are often discussed in filings we make with the Security Commission and Exchange available at www.sec.gov and on our website at www.growgeneration.com. I’m proud to turn the call over to our CEO and Co-Founder, Darren Lampert, who will present our second quarter results.

Good afternoon. Thank you, Michael, and welcome to our second quarter 2018 earnings call. We would like to begin our call by thanking our shareholders and management for their continued support and belief in the mission Michael and I set forth nearly four years ago to build the largest national chain of hydroponic stores in the U.S. I’m proud to say that I believe we will achieve that goal in 2019. Q2 was another great quarter of sales for GrowGeneration, clearly demonstrating the demand for our products and the scalability of our business model. As we continue our acquisition strategy, our management team is executing and implementing our plan, and I will further discuss this quarter’s significant event shortly. Our company continues to benefit from a strong balance sheet and cash position that affords us the ability to acquire the best of breed hydroponic operations across the U.S. The acquisition strategy is now not only delivering incremental revenue, but also operational cost savings. Our sales strategy is benefiting from our brand and operational presence in 18 locations across six states. GrowGeneration is now coast to coast. We’re not only generating sales from walk-ins, but also from our commercial direct sales team and the Internet site. Although some – although same-store sales were down for the quarter versus 2017, primarily due to store consolidations in Colorado, impact of the Santa Rosa fires and slow regulatory climate in California, particularly the July 1st day for all products to be tested before being sold and a one large – and a large one-time sales in Las Vegas. Our 2018 quarter-over-quarter sales in all markets were up 63%, with the Colorado market up 28% and the California market up 93%. Our company continues to attract capital raising $21 million in debt and equity financing…

Thank you. Yes, thank you, Darren. Revenues for the three months ended June 13, 2018 increased approximately $3 million, or 74% to approximately $7.2 million, compared to $4.1 million for the three months ended June 30, 2017. The increase in revenues in 2018 was primarily due to addition of 10 new stores opened or acquired after June 30, 2017 and one new store acquired in May of 2017, that contributed only partially the sales for the quarter ended June 30, 2017. This revenue was offset by a decline in same-store sales as we will note below. The eight new stores contributed $4.2 million in revenue for the quarter ended June 30, 2018. The company had same seven stores opened for the entire three months ended June 30, 2018 and 2017. These same-stores generated $2.9 million in sales for the three months ended June 30, 2018, compared to $3.7 million in sales for the period ended June 30, 2017, a decrease of 20.8%. With regard to these same-store sales, our revenue in the Colorado market has declined comparing the three months ended June 30, 2018 to the three months ended June 30, 2017 by approximately $212,000 and 9% primarily due to a loss of customers when we consolidated two Pueblo locations in the first quarter of 2018. While there was a loss of some revenue from these customers where stores were consolidated, all operating costs were eliminated from the store that was closed and consolidated into another store location. Revenue in the California market declined by $249,000, or 36% primarily due to the large fires in the Santa Rosa area in October of 2017 which closed our store for 17 days due to mandatory evacuations. Further, the delayed implementation of the regulations, which effectively began July 1, 2018 created a climate…

Thank you, Monty. I’m much appreciated. GrowGeneration is well-positioned to take advantage of the fragmented hydroponic industry and fuel its sales growth through continuing its acquisition strategy. As we acquired new operation, we were able to eliminate costs and grow sales, creating a dynamic profit-driven business model. Our strong balance sheet is attracting the best of breed operations. We have built a seasoned professional commercial sales team to supplement our 75 grow professionals that manage our store operations. We have in place administrative staff that is seasoned to manage our inventory, our purchasing and sourcing and logistics that will allow us to manage similar growth we’ve achieved over the last several quarters. We are reviewing acquisitions in new technology and products that bring automation – that will lower the growers costs and deliver an overall better yielding in tasting product. We have a strong balance sheet of almost $17 million in cash and strong strategic partners in Gotham Green Partners, Merida Capital and NAVY Capital. The company has set its maybe revenue run rate guidance in excess of $42 million, coming out of 2018 and in excess of $10.5 million run rate for the fourth quarter. Our future is bright and we look forward to sharing our successes with our shareholders, our management team and partners. I’d like to turn the call over to Michael to go over a few questions and also we will give a few closing remarks.

A couple of comments and some questions to – just to discuss as a follow-up to the earnings call. Question #1, the outlook of Colorado? I think, it’s important for the investment community to understand that quarter-over-quarter in Colorado, we’re up 28%. The high concentrated area of cultivators in Denver is up 42% quarter-over-quarter. So we’re seeing growth in our backyard in Colorado so we’re very bullish on where we see the future growth. And we’re seeing more consolidation, we’re adding new customers and we’ve done it also by lowering our operating expenses. So you’re seeing that trend and we see that trend continuing into Q3 and Q4. Question #2 California. We’re getting a lot of questions about our position in California, where is California going and, of course, it’s been certainly a regular – regulatory issue for a lot of companies in this space, but that’s behind us. I mean, July 1, which is the date in which all product needed to be tested is now behind us. So we’re starting to see more licenses coming online and we’re seeing more cultivators start to spend capital and start to build out. So as we’ve seen in our Santa Rosa market, it’s starting to stabilize. We made the acquisition of Santa Rosa Hydro, which is a regional play for the company. It’s not just Santa Rosa with 20,000 square feet and 3.5 acres of soil yard, we’re able to service a regional Northern California customer. So we see tremendous growth coming from that acquisition. ,:

Yes I also figured California markets. When looking at in 2017, now we had one store in California. We opened a store in San Bernardino towards the summer of 2017. On an interesting thing, you’re not seeing the San Bernardino store in our same-store sales, it hasn’t been opened a year. But that stores is turned profitable after a year. And the one thing about California and when you look at some of the comments coming out of some of the other companies in our space certainly, complaining about the regulatory climate in California and the slow uptick. What this has allowed us to do is, we’ve walked into California this year and we’ve made some tremendous purchases at very, very comforting prices to GrowGeneration. So we’re extremely bullish it on the uptake of the market. We spend a lot of time in California right now. We have salespeople on the floor in California. We’ll be in LA this week and again, we’re starting to see – we’re starting to bid out some very large transactions in California. We think, we bought in at the bottom of the California market and we’re extremely bullish on the California market. And we look forward to discussing our same-store sales in California in the future and certainly, the progress that we make in California going into 2019. Another question is, with the capital that we have on the balance sheet, how many more acquisitions can the company do? We’re Holding about $50 million in capital and the dynamic part of the business model is that we are able to purchase cost effective and we’ve demonstrated that over the last several years of rolling up the industry and we continue to attract quality companies that were able to strip out expenses, make it more profitable and grow their sales. So with the strong balance sheet, we’re attracting additional acquisition targets and there are several lined up for the next couple of quarters.

Basically, our business model that we set forth a few years ago that still rings pretty true today. For every $1 million in capital, we put to work we usually purchase around $3 million of revenue. And we still – we’re still seeing that in the market right now. So if you equate the $15 million that’s sitting on our balance sheet right now, it’s our understanding and contention that we can probably buy in excess of $40 million of revenue going into 2019, coupled with the $42 million run rate we’ve just forecasted coming out of 2018. So you were extremely bullish on this year and certainly on 2019. On one of the report and thing that we saw our loss or adjusted loss for the second quarter was $200,000. We were supposed to close the transaction, Santa Rosa Hydro was supposed to close going into the second quarter was pushed out three months. Certainly, our due diligence process took longer than we expected. And if again, if we would have included Santa Rosa Hydro into our second quarter numbers and then it would have closed on time, you would have seen a profitable adjusted EBITDA for the second quarter. Certainly, we feel comfortable going into the third quarter with our numbers. And again, we look at – business is getting better by the day. Our staff is getting better by the day and our executive committee, and we’ve learned a lot over the four years and certainly, we’re going to put that to work in the next four years.

Question #4. The last question is, when are you preparing to uplist the company? Darren, you want to take that?

Yes, sure. The company is starting to work on an uplist. We feel comfortable telling the street that we will probably be filing wait fourth quarter in uplist application and we’ll certainly keep everyone updated on the progress of it. Well, we want to thank, everyone, for their time this afternoon and we appreciate everyone’s support, and thank you and enjoy the day. Thank you.

Thank you.

Ladies and gentlemen, this concludes today’s conference call. We thank you for participating, and we ask that your please disconnect your lines.