Ascend Wellness Holdings, Inc.

Good morning and thank you for standing by. Welcome to AWH first quarter 2024 earnings call. I'd now like to hand over the conference to your first speaker today, Rebecca Kaur, Executive Vice President of Investor Relations and Strategy. Please go ahead.

Good morning and welcome to AWH's earnings call for the first quarter of 2024. The presentation that accompanies this call can be found on the investor relations section of our website. Before we proceed, I would like to remind you that the following discussion and presentation contains various 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. For more information on these risks and uncertainties, please refer to slide 2 of this presentation. Today's earnings release and our SEC and CDAR filings, including our most recent report on Form 10-K. We encourage you to review these materials carefully. During today's call, we will be referring to non-GAAP financial measures, such as adjusted EBITDA. Reconciliations to the most directly comparable GAAP measures are in the appendix of the presentation and in our earnings release. On today's call, you will hear from John Hartman, Chief Executive Officer, and Mark Kassebaum, Chief Financial Officer. With that, I'll turn the call over to John starting on slide four.

Thanks, Rebecca. Good morning, everyone, and thank you for joining our first quarter earnings call. I'd like to express my appreciation to all our key stakeholders, our patients and customers, shareholders and lenders, business partners, and especially the Ascend team, for their hard work in delivering a solid first quarter to jumpstart the year. I'll begin my prepared remarks by providing an update on the quarter and then discuss our retail and wholesale segments. Next, I'll hand it over to our CFO, Mark Kassebaum, who will give a detailed update on our financials and offer an outlook for the remainder of 2024. Finally, I'll wrap up our comments by highlighting several of the key points of Ascend's investment thesis before opening the floor to questions. Turning to our performance this quarter, we were very pleased with the results. Our total revenue net of intercompany sales reached $142 million, marking a 25% increase over last year. This growth was driven by the opening of eight new dispensaries, the acquisition of four dispensaries in Maryland, and our robust wholesale business. Additionally, our adjusted EBITDA stood at $32.5 million, up 39% from last year, coupled with a significant year-over-year margin expansion of 239 basis points. Following our first full year of generating positive cash from operations and positive free cash flow, we're happy to report that the quarter again concluded with positive cash flow from operations. Despite expected quarterly fluctuations in free cash flow generation, we continue to plan to produce positive cash from operations and positive free cash flow for the full year. Moving on to other significant catalysts, we were very pleased to learn that the Drug Enforcement Agency agrees with the Department of Health and Human Services recommendation to reschedule cannabis from Schedule 1 to Schedule 3. This is a historic milestone in the most progressive move in cannabis reform in decades. This action not only reinforces our position regarding Section 280E of the tax code, but should also improve access to capital, remove barriers for patients and customers, and help to further reduce industry stigma. Based on our understanding of the process ahead, we expect the rescheduling will be finalized before the elections. We view this rescheduling step as the first domino of many to fall towards continued federal reform. From a judicial perspective, we continue to actively be involved in an industry coalition that is challenging the DOJ's enforcement of the Controlled Substances Act against state regulated cannabis businesses. This case is progressing through the lower courts with oral arguments scheduled to occur at the end of this month. We are committed to pursuing this case hoping it ultimately reaches the Supreme Court. While we track and welcome these important and industry-building changes, we remain intensely focused on executing our growth plans, which in large part are not reliant on regulatory change. From a business perspective, as mentioned, we had another solid quarter, bolstered by our fifth consecutive quarter of wholesale growth. We continue to aggressively pursue the retail partnership strategy with social equity licensees. This approach, combined with our impressive wholesale growth, is and will offset increased retail competition in New Jersey and Illinois. We see a clear path to expanding our footprint by over 50% through our planned growth and partnership strategy. Additionally, at the state level, we are anticipating adult use to begin in Ohio before the start of summer, and we have readied all five of our current stores to welcome a multiple of customers to what we serve today. Further, to stores we operate today, we believe there is a path to adding three stores to our Ohio footprint and are actively pursuing these locations. From a financing perspective, we are well positioned to reduce our debt balance and extend our debt maturities. The $73 million of cash and equivalents that we ended the quarter with, combined with our cash flow generation ability, placed us in a strong position to repay a portion of our current term loan. In April, we began a Dutch auction process declaring our intent to buy back up to $20 million of our outstanding term loan. The auction process closed on Friday with no lenders tendering their debt for purchase by the company. This is clearly positive feedback on the company's current credit position and bodes well for the coming refinancing. In regard to refinancing, we've had very constructive conversations on our term loan that is due in Q3 of 2025. Over the past few months, we've actively sought feedback from both existing and potential new lenders, receiving several indications of interest. We have carefully balanced the need to address this debt promptly with the potential for a more favorable environment in the future. Our working plan is to have the refinancing completed before it becomes current. Let's move on to slide five to discuss the retail business in more detail. As mentioned earlier, since the start of 2023, we have opened eight new dispensaries, two of which were launched in Q1 of 2024. Combined with our acquisition of four dispensaries in Maryland, which transitioned to adult use in July, these new operations have contributed to a 15% increase in retail sales year over year. However, as anticipated, retail sales were down 2% sequentially due to increased competition in New Jersey and Illinois. Our retail revenues for Q1 were $95 million, accounting for 67% of the company's consolidated net revenues. Notably, 51% of our retail sales came from products we produced, either under our own brands or for our partner brands. This increase in penetration reflects our strategy of capturing vertical margins while offering customers extensive product choices. Our loyalty program continues to thrive, supporting both new customer acquisition and customer retention. We are committed to investing in this program due to the significant returns it delivers. Currently, 89% of our customers and patients join our loyalty program by the time they leave our stores, and we are actively exploring ways to further invest in and target these customers. Additionally, we have seven new dispensaries in the pipeline across our existing states, which aligns with our strategy to densify and scale in our existing markets. In Pennsylvania, we have three additional owned licenses. We are on schedule to open our dispensary in Cranberry, Pennsylvania in Q3, in Whitehall, Pennsylvania in Q4. With one more license, we are in the process of siting. We expect to have six dispensaries in Pennsylvania open by year's end. In addition to our fully owned dispensaries, we are expanding our pipeline of partner dispensaries. As discussed on our Q4 call, we are actively seeking opportunities to enhance our market presence and retail shelf space by partnering with social equity license holders. We are in the process of finalizing agreements with two dispensaries in Illinois expected to open this month. A third partner dispensary in Illinois mentioned in our last call is set to open in Q3. Additionally, we have secured a partnership with a dispensary in Little Falls, New Jersey slated to open just after the start of 2025. This is just the beginning, and we are appropriately enthusiastic about the substantial opportunities ahead for our partners and us as we accelerate this growth approach. Let's move to slide six to discuss our wholesale business. I'm pleased to report a positive change in the ranking of our brands due to the hard work of our product development, operations, sales, and marketing teams. Our house of brands, which includes Common Goods, Simply Herb, Ozone, Ozone Reserve, and Royale, has ascended to become the third largest in the three primary markets where we compete from a wholesale perspective. Maintaining and enhancing this position remains one of our key priorities. In Q1, our gross wholesale revenue grew by 35% year-over-year to $79 million, driven primarily by increases in New Jersey, Massachusetts, and Pennsylvania, though partially offset by declines in Illinois and Ohio. Excluding intercompany sales, our net wholesale growth surged by 50% from last year and 10% from the previous quarter to $47 million. This growth in third-party sales was notably supported by a 40% increase in third-party doors, primarily in New Jersey and Massachusetts, but also in Pennsylvania. Sequential growth in third-party sales was particularly strong in Illinois and New Jersey. And in Pennsylvania, we are excited by the introduction of 1906 drops to third-party retailers in the state. During the quarter, we successfully launched our ozone effects-based gummies in Massachusetts, marking our debut in the state's edibles market. This expansion was enabled by our recent acquisition of a second cultivation facility in Massachusetts where we invested in a state-of-the-art kitchen. Additionally, we have planted several flower rooms since the acquisition in Q1, which will help significantly in addressing our supply gap in the state. Furthermore, we have secured long-term cultivation and manufacturing supply in Maryland through two key partnerships. Our first engagement involves a long-term manufacturing agreement under which our partner will produce ozone gummies, Simply Herb Vapes, and soon, flour. These products will be available in both Ascend and the partner stores. The second engagement is a complementary multi-year supply agreement covering the third party's full portfolio of products, including branded flour, pre-rolls, vapes, gummies, and concentrates. We are excited about these arrangements and look forward to leveraging this supply in the coming quarters. Now I will turn the call over to Mark to provide some details on the consolidated finances for the quarter.

Thanks, John. Good morning, everyone. Q1 was a solid quarter for Ascend with continued improvements in consolidated revenue and adjusted EBITDA generation. Total system revenue increased by 15% year-over-year and 1% sequentially to $174 million, while net revenue, which excludes intercompany sale of wholesale products, increased 25% year-over-year and 2% quarter-over-quarter to $142.4 million. The year-over-year growth was driven by improvements in wholesale and retail. while the quarter-over-quarter revenue growth was primarily driven by the wholesale business being partially offset by modest sequential declines in retail. Adjusted gross profit increased 4% sequentially to $62.4 million, and adjusted gross profit margins increased 94 basis points to 43.8%. Our Q1 adjusted EBITDA was $32.5 million, which represents a 39% year-over-year increase and is flat sequentially. Adjusted EBITDA margin for Q1 was also largely aligned sequentially at 22.8%, primarily driven by contributions from New Jersey and Illinois cultivation and Massachusetts retail. Let's move on to discuss the balance sheet on slide nine. We ended the quarter with $73 million of cash and equivalents and $238 million of net debt. Of note, we've completed our fifth consecutive quarter of generating positive cash from operations, producing nearly $4 million in operating cash driven by profits being partially offset by working capital use. During the quarter, we used a net $2 million of cash for investing, largely driven by $7 million in capital expenditures to support dispensary builds, cultivation improvements, and the build out of our new cultivation and production facility in Massachusetts, and additional investments made for the purchase of this facility. These investments were offset by $8 million received for the sale of debt related to a Maryland cultivation asset. $1.5 million of cash was used for financing in the quarter, primarily to support the debt service and cash taxes related to equity-based compensation plans. Let's move to slide 10 to discuss our outlook for the remainder of the year. As we look ahead for the full year, we are optimistic about achieving double-digit growth in both top and bottom lines alongside a second full year of cash flow generation. Thanks to strong execution across many of our markets, We are projecting revenue growth between approximately 12% and 15%, with adjusted EBITDA growth between approximately 17% and 22%. In 2023, we finished the year with roughly $75 million in cash generated from operations, which included two significant one-time items totaling nearly $30 million. Absent these items, we finished 2023 with approximately $44 million in cash from operations. For the full year, 2024, we are targeting cash from operations generation to be between $55 and $65 million. This cash will further strengthen our balance sheet and enhance our position as we solidify our refinancing options, including the agreements already signed for our current pipeline of assets and partner stores we anticipate capital expenditures of $35 to $40 million for the full year. While we expect to achieve positive cash from operations and free cash flow for the full year, there may be quarterly fluctuations due to the timing of certain working capital uses and capital expenditures. Further to our planned growth, we plan to continue to make meaningful investments in our partnership strategy, which will draw on ending cash in the second quarter. Overall, we are excited about what lies ahead for Ascend in the remainder of the year, and we'll now turn it back to John to conclude.

Thank you all for joining us today. Before we open the floor to questions, I'd like to summarize the call by highlighting the reasons we are optimistic about Ascend's investment thesis and future prospects. First, our balance sheet positioning. As previously mentioned, we generated positive cash flow for the full year in 2023 and expect to do so again this year. We believe we are well positioned to refinance our debt in the near term. Second, our growth potential in core markets. I'm extremely optimistic about the upside potential that exists in our business as it stands today. Two of our seven states, Ohio and Pennsylvania, have the incremental flip to adult use in the near term. with significant multiplier effect we have seen in other states. We have additional Ascend stores in our pipeline that will come online in the coming quarters. And, as discussed, we plan to further expand in our established markets by forming partnerships with social equity retailers. And we will continue to grow our wholesale business and explore the expansion of our brands in current markets and in new markets. Third, our disciplined capital allocation. We have a proven track record of systematic capital investment and successful execution of accretive M&A. As we go forward, we will continue to be judicious with how we deploy capital. The partnership deals are one critical way we are deploying capital into low-risk, high ROI opportunities. In parallel, we will continue to assess new markets. Next, regulatory catalysts. We are optimistic about the impact of various regulatory catalysts discussed at the start of the call, and we look forward to additional regulatory catalysts we expect in the future. And finally, valuation opportunity. We currently trade at a meaningful discount compared to our peer group, which we believe presents a significant investment opportunity as our refinancing crystallizes and our growth accelerates. As I reflect on my first full year at Ascend, I'm filled with pride. Supporting a highly dedicated team of over 2,400 employees, engaging with our customers and patients, expanding our network to 36 stores and seven cultivation and production facilities, and working closely with a variety of our stakeholders has been extremely rewarding. Thank you once again, and I look forward to reporting on our continued success in the coming quarters. We will now turn it over to the operator and open it up to questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. If you want to withdraw from the question queue, please press star 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Russell Stanley of BCON Securities. Your line is already open.

Good morning and congrats on the quarter. I guess first question with respect to the debt refinancing. I know it's only been a week since the DEA news, but just wondering if you can talk to how you expect it to help in conversations with potential and existing lenders. pending implementation. I think you mentioned you still expected to be finalized before the election, but just wondering how much credit or how willing lenders may be to treat you as a normal tax filer from a cash flow perspective, you know, pending implementation. Thanks.

Good morning, Russ, and thank you for your question. Look, I just, I think at the top, I just highlight the strength of the business right now, and I think that's a meaningful setup for us as our board considers the next steps in our refinancing. You know, directly to your question, you know, we're very fortunate to have an excellent relationship with our current lending consortium. And we're also fortunate that there's, you know, there's renewed and I think fresh interest from others in the space and in Ascent. So, you know, we look forward to, you know, moving into the refinancing phase. As we've said and as you heard in my prepared remarks, the direction of our board is to have this refinancing completed before it becomes current in April of this year. And those are really the next steps for us. The second part of your question in terms of the context of the rescheduling, I don't think a lot has changed specifically for Ascend as it relates to our refinancing. I think the one The one critical point that I would look to is the likelihood of, upon formal rescheduling, 280E going away. And that is certainly in line with the strategy we've taken on 280E. So I think from a refinancing perspective, it is likely. It gives our investors and our lending consortium the confidence that, you know, the benefit of that.

That's great. Thanks for that. And maybe a question on the guidance. I appreciate the greater specificity you presented this quarter. In looking at the cash flow guide, $55 to $65 million, understanding your comments around quarter-to-quarter fluctuations, but On a full year basis, how much of that cash flow do you expect to come from working capital release, if any?

Yeah, I think the guidance is the guidance for us. I think for now, what we're prepared to say is that we're very confident in that $55 to $65 million of cash from operations. We have had some fluctuations in the quarter, and we anticipate some additional fluctuations as it relates to our working capital as we invest in inventory for new markets, as we invest in wholesale relationships with new customers in important wholesale markets for us like Illinois, New Jersey, and Massachusetts. And we had some timing issues as it relates to AP and some one-time events in the quarter. So we are confident in our full year commitment to those numbers for cash from operations as well as being a free cash flow positive for the year.

That's all from me for now. I'll get back in the queue. Thanks again.

Thank you, Russ.

Your next question comes from Frederico Gomez of ATB Capital Markets. Your line is already open.

Good morning. Thank you for taking my question. Congrats on the great quarter. First question, just on the guidance, could you comment on what's implied in your guidance in terms of the mix between wholesale and retail and your expectations for the year? And also, how would that impact your margins as well? Thank you.

Yes, so, you know, our wholesale and retail mix is not forecast to change substantially throughout the balance of the fiscal year. We are, as you heard in our prepared remarks, continuing to open new dispensaries, as well as grow our wholesale business. So the mix between the two we feel is important. will stay similar throughout the year. Yeah, I know. Frederico, what else on that subject?

Yeah, perfect. Thank you. Just a second question here. You mentioned the evaluation opportunity here in your stock present and, you know, how we can unlock that value. So, obviously, you trade a substantial discount to peers. I'm just curious how you view that discount in terms of You know, why do you think that is and what's within your control to help you close that? This year.

Thank you Yeah, I think that some of the reasons why this originally I think we are where we are originally is it when the when cannabis industry in the US had its big run-up in 2020 in like in 2020 and we were not yet a publicly traded company. In fact, Ascend was just getting its foundation as a company. And we went public in late 2020, right around 2021, with our IPO. And unfortunately, the market was already in a pretty steep decline in U.S. cannabis publicly traded companies. So we kind of missed that initial opportunity. And then we had the lockup of the original shares It didn't release until later in 2021, almost 2022. And so there's just not been a great deal of trading in our stock. And I think the question behind your question is, like, what changes that? You know, we think that disciplined quarter-over-quarter performance, hitting our growth in both our retail and wholesale business, making the business more efficient from a from a margin and an overall profitability perspective, driving cash generation quarter over quarter, and continuing to deploy the strategy that our founders led with, which is focusing on late stage medical markets, early stage adult use markets, and continuing to very judiciously manage and deploy capital. That's what we think will ultimately be an unlock for our business We have a strong balance sheet. We fully intend to be refinanced, as I mentioned before, before our debt becomes current later this year. We'll continue to obviously track and be mindful and take advantage of any regulatory catalysts. But our overall growth and profitability opportunities really don't rely on any further regulatory cases. Of course, we want them to happen. But in the seven states we're operating in, we see a great opportunity to continue to densify those markets. You've heard us talk about not only our own stores, but now being more clear and providing more guidance around our partnership strategy. And we think these opportunities over the short and midterm will drive and have the opportunity to drive further valuation on the equity side.

That makes perfect sense. Thank you.

Your next question comes from Neil Gilmer of Haywood Securities. Your line is already open.

Yeah, thanks very much and good morning. Maybe I wanted to see if we could talk a little bit more on the gross profit side of things. Had a nice increase in margin quarter over quarter in Q1. Obviously, with your guidance, with EBITDA expanding more than revenue, potentially there's a little bit more there. Just sort of a little bit more detail on how you're able to achieve that increase and what we should expect going forward.

Neil, thanks for the question. Yes, we are very pleased with the gross margin, what we're seeing. Again, our operations are continuing to get more. They're essentially getting better leverage. We're performing better in the cultivation sites. From the EBITDA standpoint, again, we're optimizing our existing infrastructure, and more and more of that you'll see. So just like as an example, if we look at Maryland, we'll annualize Maryland this year, but we're leveraging the same corporate overhead structure. So all we're doing is we're continuing to leverage and ramp up of a lot of the investments we made in prior quarters.

Great. Thank you for that. And maybe just on the retail side of things, you commented about 51%. coming from, you know, AWH produced product. What sort of, you know, do you have a target that you're sort of trying to achieve across your portfolio there? Where do you sort of think that that can go to?

We think that's about right, Neil. We think, you know, we've been targeting approximately 50% from a retail presence on our shelves of our own brands and the partner brands that we manufacture on their behalf. A couple things are really important, and they're on balance with one another. The first is we want to drive that vertically integrated margin, that opportunity we have to manufacture, produce, and then sell vertically our own products and those of the partner brands that we manufacture. But on balance, we also know that our customer desires a very robust product menu. And so to achieve that, we're constantly looking at the balance between our own brands, which we're proud to say from a wholesale perspective in our three key wholesale markets, we've moved up to the number three place. So we'll continue to focus on delivering great brands, but we'll do that on balance with meeting the needs of our customers who want a nice variety in the menu.

Great. Thank you very much.

Your next question comes from Andrew Sample of Echelon Capital Markets. Your line is already open.

Thank you. Good morning. Congrats on the solid Q1 results. First question would just be on Ohio. The team mentioned that they're expecting potentially the launch of adult use sales early this summer. How do you feel about the supply situation in that state for operators being able to handle the early days, the adult use market there? Do you think you'd be able to keep your retail doors well supplied in the early days of the market, or do you think it's going to be tight initially as groups continue to ramp supply?

Good morning, Andrew. Thanks for your question. I think that, you know, we look back with the experience that we've had in other adult use flips. Most recently in Maryland, and of course every state is different, but we, you know, Our company has the history, as others do, of the buildup to adult use and then the transition and the concern around having enough supply. So we have a modest size grow in Ohio that produces products for our dispensaries. But in addition to that, we have established third-party relationships that we're very comfortable with. These are long-term partners and partners in most cases we've been doing business with in other states on the supply side. And our team's done a terrific job of ensuring that we have both a nice blend of our own manufactured products for our dispensaries in Ohio, but also ensuring that we have supply for our current five and soon to be eight stores in the state. As the market turns to adult use, we believe in July, late June, early July, and we see the multiple that we expect with adult use.

Great. That's helpful. And then maybe just returning to the outlook, crunching some of the numbers around that, the outlook seems to imply ongoing revenue growth from Q1 levels. but EBITDA remaining relatively consistent with Q1 levels, EBITDA up on a year-over-year basis, but consistent with the Q1 period. So with revenues implied to be growing and EBITDA remaining relatively constant, it would seem to suggest that there is some margin of pressure accounted for in the outlook. Are you just being conservative with this, or are you anticipating some ongoing pricing pressure in some of your markets? Maybe as an add-on, if you could address whether Ohio adult use is specifically embedded in the outlook for this year. Thanks.

Sure, Andrew. So that's a three-part follow-up. Let me take the easiest one first, which is Ohio is not currently in our forecast. The second part of your question is just the outlook and the guidance that we're doing. So this is the first quarter this year. We're providing guidance. You know, we have provided a range for each of the metrics, revenue, just the cash from operations and our capital expenditures. And that's purposeful. You know, as the months tick by and when we're back together again next quarter, our views of the balance of the year will have further crystallized and we'll be able to be more specific. But right now, I think those are the ranges that we're comfortable with. And as I mentioned, Ohio is not currently in our projections. We didn't actually know when we built the budget this year if and when exactly Ohio was going to go live. So we will continue to update you from a guidance perspective as we get deeper into the year. Very fair question, part of your question is price pressure. There is, I would say, competition and price in some form or another in many of our markets. In Illinois, for example, we are grateful to be at about 90% of all the doors in the state, and competition continues to increase. We think that there will be a total of about 200 dispensaries in the state of Illinois by the end of the year. In New Jersey, Another critical state for us in our portfolio, there are about 120 dispensaries today. We have shell space in about 90% of those 120 stores today. And New Jersey is certainly accelerating in the number of dispensaries that are coming online, in our view. The good news is that to date, we've been largely... not larger, but we've been somewhat immune from some of the additional dispensaries. Not completely immune, but to a lesser extent impacted because of the geographic location and the more limited number of dispensaries immediately in the vicinity of our current portfolio in New Jersey. And we're relocating one of our stores in New Jersey to more of what we would call a cannabis island currently. So there is increased competition. It's market normalization as states put more licensees to work through new dispensaries. And in some cases, there is, and there will continue to be price competitiveness that goes along with the increased competition.

I appreciate the detailed response. I'll get back to you. Thank you.

Your next question comes from Sonny Randhawa of Seaport. Your line is already open.

Thanks for taking my question. Congrats on a great quarter. Just wanted to get some clarity on the Illinois partnerships. In terms of economics, would that be similar to what you're seeing in New Jersey at 35%? And then when we think about you've got three already in the pipeline, how many additional is there a cap in terms of Illinois partnerships that you guys can get into?

Thanks for your question. There's a distinct difference between New Jersey and Illinois. By regulation in New Jersey, we're permitted to take a 35% direct ownership in the partnership business. In the state of Illinois, we are not the owners of the business and we don't have an equity position. We are in a supporting role of independent social equity licensees. It's purely a contractual relationship. It's not a direct ownership interest. Having said that, through the relationships in both New Jersey and Illinois, because of the supply agreement that goes along with that, along with the financial investments that we're making both from an equity perspective in New Jersey and just an arm's length business transaction in the state of Illinois, we will be able to consolidate the large portion of economics from those stores as if they were part of our own portfolio. So that's how we're looking at that. I mentioned in my prepared remarks that we have a clear path to increasing our retail portfolio by over 50% in the near term. And as the relationships solidify, as the agreements solidify, and as we take the real estate under control, we'll be more clear. But we did share with you in the prepared materials what the next few dispensaries look like that are coming online, and you can refer to that with more to come in the subsequent quarter.

That's great. In terms of the CapEx guidance of 35%, 40%, you've got seven retail locations. I guess four of those are partnerships. I'm assuming the rest of that's going to be on improving the cultivation, your existing cultivation, expanding Massachusetts.

Yes, honey, this is Mark. That is true. We do have, you know, again, we do have the capital for the retail that you mentioned, but also we are investing in our cultivation. We're investing in automation and we're just continuing to leverage. And that's why you're seeing, and you will see further with some of that, you know, that gross margin lift coming out of cultivation. But again, we are, we are giving capital investment to our cultivations as well as the retail.

Great, I'll turn it back.

Your next question comes from Bobby Burleson of Canaccord. Your line is already open.

Yeah, good morning. Thanks for taking my question. So, you know, a lot of questions have been asked. I'll just kind of focus maybe on the wholesale partnership contribution. So you guys, your third party wholesale, I guess, grew 50%. And I'm wondering how significant, how meaningful is the partner brand's component of that?

I mean, we don't break that down explicitly, you know, for public dissemination. But, you know, the third party I believe your question is around the third-party products that we manufacture, or is it the third-party products that we sell in our stores, or both?

You tell me. There was a 50% growth number that you talked about with wholesale, and you referenced that as excluding the intercompany wholesalers.

Yeah, so I think our third-party growth is in two forms. The first is in the sale of our products from a wholesale perspective into third-party dispensaries. And this is a substantial part of our wholesale growth. So in the states of, as I mentioned, the state of Illinois, both Illinois and New Jersey, we're in approximately 90% of the dispensaries in the state And as that continues to grow, our wholesale team is doing a terrific job of building those early relationships and gaining shelf space in each of those markets, Massachusetts included. And then from a third-party manufacturing perspective, we do manufacture and distribute a number of products for third-party partners. you know, that's included, you know, that's included in our wholesale number. It's, you know, it's a smaller percentage of our overall wholesale business.

Okay. So it's a small percentage of that success that you refer to in terms of this. Okay. And then, you know, it seems like, you know, around the edges, obviously, with retail partnerships and then with, you know, wholesale, you know, you know, third-party brand partnerships, you're adding some incremental growth to the overall growth profile, but do you expect it to remain kind of, you know, around the edges, a small component of growth, and, you know, the majority of, you know, this acceleration that we're seeing is happening in the core business, essentially?

Bobby, I'm sorry. I didn't follow the question.

So just looking more generally, it's a partnership approach, you know, holistically across wholesale and retail. Philosophically, do you think that the growth acceleration that you guys are referring to or planning for is still on the core business? It's not really, you know, requiring a robust partnership amount of activity, or is that incorrect?

No, I think you're exactly right there. The partnerships, taking New Jersey for example, we're doing the things that we do today, we're just doing them for our partners. In our first store that's in New Jersey, due to come online early in the new year, we have signed an agreement where we are taking 35% ownership in the overall business, but we're Funding the store, providing design guidance, we provide a supply agreement to put our products in the shelves and provide operational support to our partner owner. And so in many ways, we're just replicating exactly what we do in our own stores, but we're doing it for either a partner who we have a 35% equity stake in or a partner who we have contractual relationships with to help support their business.

Fantastic. And just quickly, if I could speak one in on Ohio kind of multiplier effect as we flip to adult use. I know there's been a lot of precedent there in other markets, but there's a range of what happens typically. And just from what you understand on the ground in Ohio, what kind of multiplier range should we be expecting? And that excludes any kind of potential supply constraints just in terms of where you think the demands could go.

Yeah, we tend to want to be conservative in our thinking around this, and we plan for the upside, but financially we plan conservatively. We saw in Maryland, which is the most recent example in our business, kind of right down the middle of the fairway, 2.25 to 2.5 times lift over medical, and we can continue to see that in our Maryland stores, and we see that building. And so we expect Ohio to be similar to Maryland, probably in that 2 to 3 range. You know, one of our principal Ohio stores is right on a non-cannabis border with a location in downtown Cincinnati. So, you know, there's opportunity, but, you know, we do tend to look at these things conservatively. We pick locations for, you know, to be as productive as possible, and we continue to enjoy a sizable market. lead in per dispensary revenue, and that's because of the hard work of our team citing great locations, and we think that's also the case in Ohio. So more to come as we get into it. We'll be able to provide more clarity around what we're seeing.

Fantastic. Thanks again for taking my question. Sorry about the lack of clarity on my first one.

There are no further questions at this time. I would hand over the call to Rebecca Kaur for closing comments. Please go ahead.

Thank you all for joining today's call. We hope we answered all of your questions. For more information, please visit our website at awholdings.com slash investors or feel free to email ir at awholdings.com. Have a great day. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for your... your participation and you may now disconnect.