Ascend Wellness Holdings, Inc.

Good evening and thank you for standing by. Welcome to AWH's first quarter 2022 earnings call. And I would like to hand the conference over to your first speaker today, Rebecca Corr, Head of Investor Relations. Please go ahead.

Good evening and welcome to AWH's earnings call for the first quarter of 2022. The presentation that accompanies this call can be found on our website, www.awholdings.com slash investors. Before we proceed, I would like to remind you that there are several risk factors and other cautionary statements contained in our SEC and CDAR filings, including our annual report on Form 10-K for the year ending December 31st, 2021. We expect to file the 10-Q for the quarter ending March 31st, 2022 within the next few days. We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans and other prospects constitute forward-looking statements or information. These forward-looking statements or information are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements or information reflect management's current view only and we undertake no obligation to revise or update such statements or make additional forward-looking statements in the future. During today's call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials in the appendix of the presentation. These non-GAAP measures as defined by AWH may not be comparable to measures with similar titles used by other companies. On today's call, we have Abner Curtin, Chairman, Founder, and CEO, Frank Perullo, President and Co-Founder, and Daniel Neville, our Chief Financial Officer. With that, I'll turn the call over to Abner.

Thanks, Rebecca. Good evening, everyone, and welcome to our Q1 2022 results call. As always, I would like to express our sincere gratitude for the tremendous support we receive from our customers, employees, partners, and shareholders as we continue to fulfill our mission of bettering lives with cannabis. The cannabis industry remains one of the fastest growing sectors in the United States and continues to motivate the Ascend team to reach new heights every day. Cannabis is now a staple in this country, In 2021, legal cannabis sales officially surpassed sales of Starbucks, despite the fact that coffee is sold in all 50 states and cannabis only 39. State by state, the industry is taking the country by storm with the legal cannabis market in the U.S. projected to reach $33 billion by the end of the year. Cannabis economies remain siloed by state and subject to the ebbs and flows as the various supply and demand curves evolve. However, even on the industry's worst day, the economics remain stronger than most sectors. Although federal legalization remains far out on the horizon, the industry is making meaningful strides that suggest positive momentum. Notably, in Q1, Scott's Miracle-Gro, a company listed on the New York Stock Exchange, leveraged a creative structure to acquire Etienne, a U.S. plant touching company with a New York license for $247 million. This says to me that New York Exchange New York Stock Exchange listed companies are not afraid to acquire U.S. plan-touching assets. While just one transaction, this does signal a move in the right direction that indicates the potential for renewed investor interest by strategic acquirers in the sector. We remain pessimistic about the chances of any federal cannabis legislation passing this year. While the House of Representatives has passed the SAFE Act and other legislative proposals numerous times, the Senate has failed to act. Senators Schumer, Booker, and Wyden seem completely willing to let nothing happen if they can't get full legalization measured through Congress. Like anything in Congress, you can never be sure, and we hope this analysis proves to be incorrect. It is not lost on me that the equity markets have been difficult and the cannabis equities are a complete disaster. The sector has completely derated as institutional investors are largely unable to buy in this space because of custody-related issues. while those that can are boycotting the space due to the lack of progress on federal reform. Valuations are completely divorced from fundamentals. We remain confident this will change in the intermediate term, but we acknowledge that this is a challenging period for investors. Quarter one was a mixed quarter financially, as Ascend continued to lay the groundwork for solid growth beginning in Q2 of this year related to the start of New Jersey adult youths. The wholesale markets in Mass and Illinois continue to be very difficult, both in pricing and volume, which we expect to continue for the foreseeable future. Our Q1 results reflect our investments in the business and the growing pains required to take the next giant leap forward in our expansion plan. Subsequent to the quarter, we commenced adult use sales at our dispensary in Rochelle Park, New Jersey. Frank will provide a detailed update on New Jersey later, but I am proud of the team for the near flawless transition to adult use. Our first day of adult use sales at the store contributed around 1,500 transactions and an average basket size of 135. We believe that New Jersey will be our main retail growth engine for 22, and Ascend has the potential to have outsized impact from New Jersey compared to other MSOs due to our size and exposure. This morning, we announced that we signed a term sheet to settle our lawsuit with MedMen related to the New York transaction. After a few months in litigation, it became apparent that the process could take a significant period of time to complete. Although we are confident that we could have prevailed in court in the long run, we decided to settle to ensure we receive the assets in time to be ready for adult use expected in 23. We settled for what we view as a nominal amount in relation to recent precedent transactions for New York assets. We plan to fund the additional $69 million needed to close the transaction this year with cash on hand and by expanding our existing credit facility. Also, after the quarter, we announced the close of a transaction providing us with vertical access to the Pennsylvania market. I will view that transaction in more detail momentarily. But before doing so, let's turn to slide four to review our updated consolidated footprint. With the Pennsylvania acquisition closed and the MedMen litigation soon to be behind us, we can say we have seven states in our footprint. Our future is looking greener. We are developing a leading presence from the Midwest through the Northeast and remain committed to being a top five player in each of the states which we operate with a focus on limited license recreational or near recreational highly popular states. Ascend has achieved a mature vertical market in Illinois and is doing over 40% EBITDA margins in the state. The rest of our states are rapidly coming up the J curve as we execute our model of purchase, invest, turn on, drive vertically, and scale. As of today, we have 20 operating dispensaries and five grows with licenses or definitive agreements across seven states. By the end of 23, we plan to have 34 operating dispensaries, including the four in New York, the six Pennsylvania, and four more that are under construction. Turning to Pennsylvania. Core to our investment thesis is being disciplined allocators of capital, and our recently closed acquisition of Story of PA, a clinical license registrant in Pennsylvania, illustrates that. This affords us vertical capabilities with one cultivation and six dispensary licenses in an attractive limited license market that we believe has strong potential to legalize recreational sales in the near term. This limited licensed state has a population of roughly 13 million people and generates over 1.4 billion in legal sales annually with only 155 operating dispensaries. The uniqueness of the clinical registrants license and the ability to place five of the six stores anywhere in the state. The only location restriction is the one store that must be in the same area as the affiliated medical school which for us is in Scranton. By citing our locations in 2022, we are able to leverage second mover advantage over older medical stores that were cited a few years ago, enabling us to pursue our strategy of scouting and seeking the best locations for new adult use market in highly sought after retail quarters with ample parking. We plan to position the remaining five dispensaries in the suburbs of Philadelphia and Pittsburgh municipalities that only more recently become amenable to cannabis retailers. We have been a nominal shareholder in Story PA since prior to its application for the license and have been watching the Pennsylvania market closely. We recognize that the supply and demand balance has shifted in the past year and as a result we have repriced this transaction prior to closing. We now plan a moderate wholesale strategy in the state by building just 25,000 square feet of canopy to support our retail operations. before making the decision to expand and invest for an adult use market. We intend to fund the build out by drawing on our existing credit agreement and with a sale lease back of the cultivation facility. Pursuing accretive opportunities is at the heart of what we do. We acquired StoryPA for $53 million, comprised of 12.9 million shares and 10.2 million of cash. We value stock yearly, especially given the current pricing. and I want to assure you that we would only issue stock at these levels for a material transaction that we viewed as both highly strategic and attractively valued. Let's now move to slide six to discuss the New York settlement details. We were very disappointed in this litigation from the get-go because we felt it was a case of seller's remorse by MedMen, and I am pleased to report that they have surrendered. We have always been highly confident we would prevail in court, but we decided to settle so we could move forward with improving the acquired New York operations to begin supporting the medical patients and to begin to build additional supply in anticipation of the adult use market. While the $15 million is essentially an extortion payment, it is a significant discount from the outrageous sums that MedMen was asking for, so we view this as a win. As part of the settlement, MedMen will withdraw its counterclaims against the SEND, and we expect to close on the transaction shortly. Under the revised terms, we will receive almost 100% of the controlling interest in MedMen for $88 million, 74 of which will be due or closed, and we will make a subsequent $14 million payment upon the first sale of recreational cannabis in a MedMen New York dispensary. The revised $88 million all in for the transaction is still incredibly cheap compared to recent comps like the Etienne transaction I mentioned earlier, further illustrating how we create value through smart acquisitions at attractive prices in late-stage medical markets before the flip to adult use. We are thrilled to have the distraction of a lawsuit behind us so we can focus on integrating the four dispensaries and OneGrow into our portfolio, and we look forward to delivering high-quality cannabis and retail experience to the patients and citizens of New York. With that, I would like to turn the call over to Frank Perullo, president and my co-founder, to dive into further updates.