Ascend Wellness Holdings, Inc.

Good evening, and thank you for standing by. Welcome to AWH's third quarter 2022 earnings call. I would 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 third quarter of 2022. The presentation that accompanies this call can be found on our website, 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 ended December 31st, 2021. 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 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. We undertake no obligation to revise or update such statements or make additional forward-looking statements in the future, except as required by applicable law. References made during this call to future-oriented financial information and financial outlooks, all of which are subject to the same assumptions, or assumptions, risk factors, limitations, and qualifications. While we believe that such estimates have been prepared on a reasonable basis, reflecting best estimates and judgment, the actual financial results of the company may vary from the amounts discussed herein. During today's call, we will be referring to non-GAAP measures such as adjusted growth profit, adjusted EBITDA, and adjusted EBITDA margin as defined and reconciled in our earnings material appendix. 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, Executive Chairman, Frank Perullo, Interim Co-CEO and President, and Daniel Neville, our Interim Co-CEO and Chief Financial Officer. With that, I'll turn the call over to Abner starting on slide four.

Thanks, Rebecca. Good evening, everyone, and welcome to our third quarter 2022 earnings call. Since Ascend was founded in 2018, the cannabis market has evolved enormously, and Ascend has experienced impressive growth across all aspects of the business. When we began, only 10 states had legalized recreational cannabis, while only 25 states had cannabis available for medical use. At the time, market sales were just over $10 billion, with 250,000 employees working in the sector. Fast forward to today. The U.S. cannabis industry employs over 428,000 workers, and the market topped 25 billion in sales last year. Just this week, voters approved adult use in two states, bringing the total to 21 states having adult use, representing nearly 50% of the population of the country. This is a further indication that the march towards legalization continues throughout the United States with or without federal legalization. We have seen state market dynamics ebb and flow, but ultimately people want this product, and they are voting for it. It is only a matter of time before the federal government follows suit. Over the same period, Ascend has grown fast. Our Q3 revenue and adjusted EBITDA run rates were $445 million and $111 million, respectively, representing impressive compounded annual growth rates of 147%, and 225% since the company's first full year of operations. This quarter, the entire business contributed to the success. We achieved same-store sales growth in our retail businesses as well as considerable growth, both our gross and net wholesale revenue. We achieved this growth through a strategy we call MSO 2.0. Our model has been to enter late-stage medical markets build an at-scale grow facility to supply our stores for the onset of adult use, and as soon as permitted, open stores in high-traffic retail locations with parking and top-tier operations to manage customer flow. This is the playbook we used in Illinois, where we have executed to become among the top three operators with two of the highest revenue-generating stores in the state and one of the top brands. This same playbook allowed us to immediately become a leader in adult use in New Jersey, despite having a moderate medical presence. We plan to use the same blueprint in Ohio, Pennsylvania, and additional states we plan to enter, such as Maryland. We don't always get it right. We entered Michigan and Massachusetts, markets which were more competitive than we anticipated, and we have not achieved state leadership in either. Even with those setbacks, we are profitable in all our markets and are reallocating capital to the best opportunities. We come from financial backgrounds, and the best way to improve returns to investors is by quickly pivoting and moving capital to the highest return opportunities as we see them today. It is becoming more and more apparent in this industry that the winners are going to be the ones that will allocate capital most successfully. We are building a track record of execution to become a top-tier operator. Our 25% adjusted EBITDA margin achieved this quarter puts us in the PAC's top quartile, solidifying our position as a top US MSO. At the same time, we are almost break-even cash flow from operations, signifying the transition of the company's hyper-growth to one of more moderate expansion with a focus on cash generation. We have one of the strongest balance sheets of our peers with 91 million in cash and are nearing cash generation as new operations come online. The company is currently in transition from founder-led management to bringing in successful operational leaders with experience managing growth and cash flow generation as we continue to scale to an industry-leading position. We recently engaged Russell Reynolds to support our search for a CEO to lead our next phase of growth. In the interim, Frank Perullo and Dan Neville continue their work as leaders of day-to-day operations with the additional responsibilities of interim co-CEOs, as I assume the position of executive chairman. Let's move to slide five to discuss the industry valuation headwinds. MSO stocks remain depressed because of the lack of institutional ownership due to the inability to trade on major exchanges and access to custody from most banking institutions. We hope that changes soon, but are awaiting movement at the federal level. As one of the fastest growing consumer product groups in the United States, it's a question of when, not if, the sector will develop strong institutional support. Despite our successes mentioned above, we are valued at less than four times next year's EBITDA based on consensus estimates, while Tier 1 MSOs are valued north of 10 times next year's consensus forecast EBITDA and Tier 2s traded