Ascend Wellness Holdings, Inc.

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

Good evening, and welcome to AWH's earnings call for the second quarter of 2022. The presentation that accompanies this call can be found on our website, www.awholdings.com. 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 filed our 10-Q for the quarter ending June 30th, 2022 earlier today. We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully. Various remarks on this call concerning expectations, predictions, plans, and prospects constitute forward-looking statements or information. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements 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 Chief Executive Officer, Frank Perullo, President, Co-Founder, and Chief Strategy Officer, and Daniel Neville, our Chief Financial Officer. With that, I'll turn the call over to Abner starting on slide four.

Rebecca, I'm extremely proud of the team for the performance in Q2, proving our strategy of successfully expanding our business. We are well on the way to becoming a premier MSO in our target markets east of the Mississippi. We delivered record revenue for the company in both our retail and gross wholesale business. We attained robust growth and our financials exceeded expectations accelerated by an earlier-than-anticipated start to adult-use sales in New Jersey and a rebound in the wholesale business. Revenue grew 15% sequentially and adjusted EBITDA margins expanded by 220 basis points. The strength was across both business segments. Retail revenue increased 19% sequentially, while gross wholesale revenue increased 11%. Moreover, we are very pleased with our initial transition to adult use in New Jersey. Our Rochelle Park store has been very successful. The store is now our number one store, surpassing our $50 million revenue a year store in Collinsville, Illinois. We aren't stopping here. We have significant continued upside in New Jersey. We expect to begin adult use sales at our Montclair, New Jersey store later this week, August 19th, subject to final approval by the town. Our Fort Lee store opened last Friday for medical sales, and we expect to commence adult use sales sometime in the fall. We have begun growing in the first phase of our canopy expansion in New Jersey and expect significantly more canopy to come online by year end. Accordingly, we continue to expand our New Jersey cultivation capabilities so we are able to offer more of our own products to our customers and increase gross margins. Results in New Jersey illustrate our investment thesis. Last June, Rochelle Park averaged 1,800 transactions a month. This June, transactions were up 23 times and revenue was up 17 times. Overnight, with the start of adult use sales, we're able to significantly increase profitability. That is exactly why this business resembles such a stair step. While we may go through lulls in growth, when we do turn on assets, they ignite. We expect to see a similar dynamic in Pennsylvania and Ohio when those states become adult use at some point in the future. Outside of New Jersey, the rest of the business performed well. Excluding adult use flips and new store openings, retail transactions grew by 8% sequentially, and despite pressure on basket sizes in some stores, retail revenue grew 4% sequentially. We are particularly pleased with the team from Ascend Michigan, which was able to achieve 23% retail sales growth despite being in a very competitive market. Turning assets on and optimizing our existing asset base is our key focus. In Q2, we secured an additional $65 million of debt to finance our expansion plans in Pennsylvania and other growth initiatives. It was highly opportunistic to secure this capital amid a capital drought in our industry. We have one of the strongest balance sheets among our peers and no material maturities for the next three years, which is a huge competitive advantage. We ended the quarter with $140 million of cash, enough to fuel our near-term initiatives as we move towards generating cash flow from operations. We remain laser-focused on limiting non-essential capex increasing operating cash flow and becoming a cash flow generating company during 2023. Just today, we announced the signing of a definitive agreement that provides us the ability to acquire 100% of the stock of Ohio Patient Access LLC. This transaction will add three medical dispensaries to our portfolio in Ohio and will bring us to the state-imposed five dispensary cap and further our exposure to this highly populated state with near-term wreck potential. We have plans to build the dispensaries in central retail quarters in Sandusky, Pequot, and Cincinnati, respectively. The Cincinnati location will be our Ohio flagship store and will be the only dispensary in downtown Cincinnati. Not only will the dispensary be across the street from a casino and less than a mile from the Bengals and Red Stadium, but it is the closest dispensary to the Kentucky border and intersects two major highways, This model is representative of our core retail philosophy to never sacrifice location. Also subsequent to the quarter, we signed a definitive agreement to acquire two additional paper licenses in Illinois. We plan to site one in Tinley Park, one of the fastest growing suburbs southwest of Chicago, and the second one in an up and coming neighborhood in the greater Chicago area. Upon closing of these transactions, we will have 10 dispensaries in Illinois. and we'll be at the state imposed cap. In Illinois, we will only be the fifth company to have reached this 10 store cap. Going deep in the states which we operate and being a top player in each state is critical to high levels of profitability. Illinois is a great example of what can happen when you achieve scale and go deep within a state. We entered the Illinois market fewer than four years ago and have since become a top player in the state. Our wholesale products are sold in 99% of the dispensaries, Our ozone brand is one of the leading brands, and we have one of the highest-grossing dispensaries in the state. Furthermore, once these deals close, we will be at the retail cap in every one of our states, with the exception of the Pennsylvania market, which we are set to open early next year. While scale in our existing states is our priority, we are considering opportunities to improve our footprint and future earnings potential outside of that footprint. We are actively pursuing multiple opportunities to enter Maryland. Maryland is home to more than 6 million people and has a mature medical program. Adult use is on the ballot in 2022, and we believe the start of adult use sales are likely to occur by the end of 2023. Prohibitive taxation and access to capital pose challenges, but they also serve as a barrier to entry. In this environment, we choose to focus on building a moat around our business and carefully managing cash, which is where our team excels. We expect to see consolidation in the industry and a lot of opportunities to acquire desirable assets. And we are prepared to be opportunistic with what we perceive to be heavily discounted transactions. All of the deals being contemplated have a high returns profile and should improve the portfolio on a risk-adjusted basis. In contrast, due to concerns about the status of MedMen New York's assets, which have deteriorated materially since December 31st, we are not moving forward to close the transaction that we previously announced. We have been engaged in negotiations with MedMen for 17 months, and because of the state of MedMen's assets, it is time for all of us to move on. Because we will not be moving forward with the MedMen transaction, we have 70 million of unencumbered cash at a time when cash is dealing. In addition, as many of you know, the regulatory environment in New York remains highly uncertain, given the unknown timing of the commencement of adult use sales, unclear licensing process, and the lack of policing of the illicit market. As a result, the New York market is not a priority for AWH, but we will continue to monitor it closely. Management and the board are excited about the asset base that we have and the trajectory of the industry, which remains one of the fastest growing sectors in the United States. Given this momentum, we continue to believe in Ascend's potential to deliver long-term shareholder value. We are in this together and through the long haul. This support is evidenced by our entire board of directors, including my co-founder, Frank, and myself, making share purchases of Ascend common shares on the public market. Additionally, several months ago, I elected to take all of my 2022 compensation as stock. Our team is 100% aligned with investors. Based on most analysts' expectations, we traded a 30% to 45% discount out compared to projected estimates of our peers. We view this as completely unjustified given our best-in-class portfolio and execution of our business plan. Not only are we aligned with investors, but we are making strides to help right some of the wrongs and injustices that plague our industry. Our contributions and customer match donations to the last prisoner project recently passed 1.75 million since we started the program. These funds will undoubtedly be useful as the organization works to fight criminal injustices and fight for reform. In addition to partnering on these efforts, Ascend is doing our own social equity work. We recently launched the Ascend Foundation, a nonprofit organization committed to the holistic wellness of our communities. Through the foundation, we've begun providing technical assistance to social equity applicants in New Jersey, allowing them to access to mentorship from our staff, and have hired returning citizens in Chicago and Boston as interns, and will soon be kicking off a series of educational workshops and expungement clinics. This is important work, and we are happy to be a small part of it. With that, I will turn it over to my co-founder and AWH president, Frank Perullo, to provide detail on our progress in New Jersey, starting on slide six.