Ascend Wellness Holdings, Inc.

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Good afternoon, and thank you for standing by. Welcome to Ascend Wellness Holdings Q1 2026 earnings call. Before proceeding, the company 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 the risks and uncertainties, please refer to today's earnings release and ASCEND's SEC and CEDAR filings, including their most recent report on Form 10-K and quarterly report on Form 10-Q. During today's call, the company will be referring to non-GAAP financial measures such as adjusted EBITDA. Reconciliations to the most directly comparable GAAP measures are in an appendix to the presentation and in the company's earnings release. I am pleased to introduce the Ascend management team joining us on today's call. We will begin with Sam Brill, Chief Executive Officer and Director, who will provide an overview of the key operational developments over the first quarter of 2026. After that, Roman Nemchenko, Chief Financial Officer, will review the company's financial results for the quarter. With that, I would like to turn the call over to our first speaker, Sam Brill. Sam, please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining today's call. On our last call, we noted that the tone around cannabis reform was shifting. That has now translated into action. On April 23rd, the U.S. Department of Justice issued an order rescheduling medical cannabis from Schedule 1 to Schedule 3. While this is not full legalization, it is a historic step forward for the industry. We remain optimistic about the potential for broader reform, including the rescheduling of adult use cannabis through the DEA's administrative hearing process beginning June 29th. If that process continues as anticipated, it would mark another tangible step toward a more normalized regulatory and tax framework for the industry. Over time, broader rescheduling could unlock improved access to capital and financial services. This may facilitate the gradual introduction of credit card acceptance, deeper engagement with traditional banks, and renewed institutional interest. As regulatory clarity continues to evolve, we are actively exploring pathways to uplift to a major exchange, and we are evaluating the implications of the DOJ order on our Section 280E uncertain tax positions. While we are still awaiting guidance on key details and regulations needed to assess the full impact of the DOJ order, we view this as a constructive shift. The most direct near-term benefits are expected to be incremental and primarily tax-driven for our business. We will continue to monitor these developments closely while positioning the company to benefit from both the current and potential future changes. This regulatory progress follows a first quarter that demonstrated the resilience of our business in the face of atypical seasonality and continued industry headwinds. We are encouraged by our ability to maintain momentum despite the challenging operating environment. For Q1, revenue and adjusted EBITDA were both ahead of our guidance range and the broader market expectations, reflecting steady and disciplined execution against our strategy. Net revenue was $116.9 million, down 3% sequentially. As expected, sales softened after the holiday season with added pressure from the severe winter weather across our northeastern footprint, leading to temporary store closures, reduced hours, and limited consumer mobility. A more favorable product mix increased retail revenue to 71.1% of net revenue. reflecting our continued shift towards vertical sales, supporting margin expansion and improved price per gram. Underlying consumer demand for cannabis remains healthy and growing. It is worth noting that transaction volumes remain relatively stable. We sold more units year over year across our portfolio. Traffic held steady even as pricing pressures continued. In markets where we have invested in consistent everyday pricing, transaction volumes accelerated. Consumer demand is an industry tailwind, and we are seeing it in our own stores. In Ohio, transaction volumes increased 11.8% quarter over quarter, driven not just by our new Englewood dispensary, but by a deliberate shift to consistent and transparent pricing. Our evolved pricing strategy keeps customers coming in at a higher frequency, which improves our margin profile through increased verticality, and it is a model we are actively replicating across markets. This shift towards verticality is not accidental. It reflects the progress we have made in improving the quality and appeal of our brands to the point where our customers are increasingly choosing them. While adjusted gross profit fell a minus 1.4% to $53.9 million, adjusted gross profit margin expanded by 70 basis points to 46.1%. This was driven by optimized menu assortment, refined retail product menus, and increased verticality. Adjusted EBITDA was $26.3 million, with a margin of 22.5%. Sequentially, lower sales resulted in reduced absorption of fixed costs, and SG&A was impacted by the reset of payroll tax gaps, ramping labor and rent at new stores, and increased marketing spend related to our CPG strategy. Our capital base remains strong, with $60.9 million in cash and no major debt maturities until July 2029. The ability to manage our balance sheet positions us to navigate unforeseen one-time events and operational headwinds. We believe our results in Q1 mark an important inflection point. This operating strength provides solid footing to execute on our 2026 priorities and pursue strategic growth opportunities. Our 2026 priorities build directly on our strengthened operational foundation established last year. We continue driving our densification strategy to expand our retail footprint. Year to date, we have added five new stores, including three new locations in the Northeast and two in the Midwest. For example, we opened our Eatontown, New Jersey, partner-owned and operated location on 420 with cannabis reform advocate Kyle Page. An additional four partner store opportunities remain in our New Jersey pipeline. We look forward to continuing to support small cannabis businesses through retail development programs like Roots, launched in partnership with New Project in Q1. Our retail pipeline includes 10 additional stores. This should expand our total Ascend and partner owned and operated store footprint from 51 to at least 60 by year end, subject to regulatory approvals. Looking beyond 2026, we intend to continue this expansion past our 60 store target. As we scale our retail footprint, incremental revenue is expected to drive operating leverage, which will help combat price compression and should also lead to margin expansion and improve profitability. Next, we are building on our enhanced customer-first retail offering by continuing to improve the in-store experience and strengthen customer loyalty. Our customers are responding positively. Our average Google store rating remains strong at 4.6 out of 5 stars, underscoring our sustained high service standards and team execution. Engagement has strengthened meaningfully, with average monthly review volume per location consistently increasing. Menu for refinements across stores and digital channels prioritize high-demand products to better align and evolve with customer preferences unique to each market. Customer interaction remains strong, supported by more than 370 retail pop-ups across the Ascend footprint during the quarter. Ascend pay adoption is also accelerating, from 6.2% of total transactions in Q4 to 8% in Q1, marking a 29% jump. This growth is improving customer experience by streamlining payments and enabling faster checkouts across our network. The introduction of credit card acceptance, which could follow the rescheduling of adult-use cannabis, would build on this foundation and create a more seamless omni-channel experience that drives loyalty, basket size, and long-term retention. Loyalty membership is up over 34% sequentially. This growth is more than just the retention metric. It reflects both customer acquisition and increased frequency of shop. In Q1, about 89% of transactions are now tied to our senders club members, who spent nearly 20% more per transaction. Loyalty members visit our stores more often, spend more per visit, and are more likely to choose our brand's overall alternatives. This dynamic is a meaningful contributor to our improving verticality and margins. Lastly, we are steadily advancing our CPG strategy. with a focus on shifting our product mix towards higher margin offerings to drive revenue program and improve overall profitability. In Q1, Ascend reached the number two spot as a brand house by sales and units in Illinois, Massachusetts, and New Jersey combined, according to BDSA. To put that into context, this ranking is measured against every brand competing for shelf space across three of the most competitive cannabis markets in the country. Moving from outside the top five to number two in just one year reflects the real share capture driven by our notable improvements in product quality and portfolio breadth. Ascend market share across Illinois, Massachusetts, and New Jersey combined grew 11% sequentially, following a wave of new and differentiated product launches. Driving this was Ascend's infused flower portfolio, which was up 37.5% sequentially. High Wired gained 44% more share and ranked as the number one infused flower brand across the three states in Q1 per BDSA. High Wired stands out because of the superior inputs compared to most of the competition, using some of our best cultivars topped with diamond dust and terpene-rich crumble, delivering a smoother, flavorful, and potent experience. Every major player is competing for share in this category. To reach number one in flour and a top spot in the total category is a meaningful result, especially since we only introduced the HiWire brand in 2025. Q1 marked a key milestone for Ozone, our flagship brand. After over a year of focus and investment to reach our highest quality standards, our team delivered significant improvements in flour, strain diversity, and product quality consistency across our facilities. To better reflect the significant achievements, we upgraded ozone packaging and visuals and added new products and formulations across all categories. As part of this brand relaunch, we introduced ozone's first full-spectrum live resin gummies, now in Illinois, Massachusetts, and New Jersey. with more markets to follow. Our new macro-dose gummies rolled out across all three states in April in both 100-milligram and 50-milligram formats. Overall, Ozone was the ZEN's best-selling brand in Q1 and drove an unexpected 2.6% vertical sales jump after the relaunch. Our bud tenders who know every product in our markets are now proactively recommending and choosing Ozone products for themselves because they believe in it. staff advocacy is one of the strongest signals of genuine brand health, and we are hearing it from both our team members and third-party wholesale customers. That creates a different kind of brand momentum, and we are seeing that begin to take hold. We launched several other notable products during the quarter, including Honor Roll, our premium 100% whole flour pre-rolls, expanded high-wired into infused flour with sugar caps, and high-wired liquid diamond vapes, and expanded cultivar selections for the ultra-limited small-batch Ozone King of Queen Cola. These launches highlight the momentum of our CPG strategy. Enhanced quality, consistency, and potency across our portfolio are setting a new benchmark for Ascend. Beyond the rescheduling process, we're also tracking meaningful developments at the state level in core markets, including intoxicating hemp regulation. Recent regulatory updates in Massachusetts are creating a more stable, scalable environment. These include lifting the retail license cap to six stores per operator, raising consumer purchase limits to two ounces per day, and updating ownership rules to enable more flexible capital structures and partnerships with social equity operators. This improved structure could allow us to expand our platform and increase the vertical sales of our Massachusetts business. We're already seeing an early uplift in average ticket size as consumers take advantage of the higher purchase limits. Upcoming intoxicating hemp regulation in Q4 is beginning to show signs of consumers shifting from unregulated hemp products into the legal regulated market as supply contracts and retailers begin to wind down their hemp product inventory. As federal regulations tighten the THCA loophole and state markets absorb consumers from unregulated channels, licensed operators like Ascend are structurally positioned to compete for a share of that demand. In summary, the direction ahead for Ascend is encouraging. Our recent improvements have strengthened our ability to fight ongoing industry headwinds like price compression, increased competition, and regulatory delays. We believe this marks an important inflection point as we execute our 2026 priorities. specifically through further retail densification, the continued improvement of our customer-first retail model, and the advancement of our CPG strategy designed to drive high-margin sales and optimize our product mix. Our densification strategy provides a clear runway for top-line growth in the coming quarters, and we look forward to realizing the benefits of the operating leverage we've created. With that, I will turn the call over to Roman to provide a more detailed review of our first quarter financial results.

Thank you, Sam, and good afternoon, everyone. For the first quarter of 2026, the company generated $116.9 million of net revenue, which is a decrease of $3.6 million, or 3%, compared to the fourth quarter of 2025. Retail sales were $83.1 million, down by 2.2% quarter over quarter. The decrease was primarily driven by softer post-holiday consumer spending and weather-related disruptions. Transactions were down in the first half of the quarter, with meaningful recoveries by the end of March. Persistent competition also continued to add pressure on pricing and transactions across our existing retail footprint, which was partially offset by the ramp of new stores. Wholesale revenue was $33.8 million, a decrease of 5% sequentially. Wholesale deliveries were also impacted by the same seasonality trends that impacted our retail business, with softer sales in January and February, offset by recovery in orders and deliveries for March. Q1 adjusted gross profit was $53.9 million, representing a decrease of $0.8 million, or 1.4%, quarter-over-quarter. An adjusted gross profit margin increased by 70 basis points to 46.1%. While the decrease in adjusted gross profit is consistent with sequential decline in sales, adjusted gross profit margin increased as a result of improved verticality and stronger margins on third-party product sales. Adjusted EBITDA was $26.3 million, down by $3.9 million, or 12.9% from the prior quarter, with an adjusted EBITDA margin of 22.5%. The decline was primarily due to the sequential decrease in sales, as well as an increase in SG&A related to intensive comp accrual timing, reset of employer taxes for the calendar year, and new store openings. Turning to our balance sheet. We finished the quarter with $60.9 million of cash, down by $24.8 million from year end. The net change from the prior quarter reflects $19.4 million of net cash outflows from operations, $4.8 million used in investing, and $0.6 million used in financing activities. Cash outflows from operations includes $19.1 million of recurring biannual interest payment made in January, as well as a $17 million settlement of the previously disclosed arbitration matter. Investing outflows of $4.8 million includes $5.2 million of total CapEx and approximately $3.6 million of M&A-related payments. Total CapEx includes $1.8 million related to new store build-outs, with the remaining $3.4 million used for projects across our cultivation and manufacturing facilities. Financing outflows of $0.6 million mostly includes payments associated with finance leases and tax withholdings and equity awards. CapEx for 2026 is still expected to be about $20 million. With the majority of our facility optimization span behind us, most of this budget will be deployed towards new store openings. Additional capital will also be available for talking acquisitions to continue driving our densification strategy. Following the quarter end, we have decided to temporarily suspend operations at our cultivation facility in Lansing, Michigan. The temporary shutdown was necessary to begin remediation related to a fire incident. We do not anticipate this to have a material impact on our Michigan business. Looking ahead to Q2, we're expecting 2% to 3% top-line growth, driven by the ramp-up of new store openings and more favorable seasonality across the comparable store base. Adjusted EBITDA margin is expected to hold steady in the low 20% range. Although we did not make any changes to our 280E-related uncertain tax position in Q1, we are actively evaluating the impact of the April DOJ order on our business, as well as our accounting policy, and look forward to providing further updates next quarter. Before opening up the call to questions, on behalf of management, I would like to thank the entire ASCEND team for their continued hard work and dedication. We're truly grateful for their efforts and recognize that our progress is driven by their commitment to executing our vision. We also appreciate everyone who joined today's call. I look forward to our next updates. With that, I will turn the call over to the operator for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. And if you're using a speakerphone, please lift the handset first before pressing any keys. And we have our first question from Neil Gilmer with Haywood Securities.

Thanks very much. Good afternoon. I wanted to start on the gross margin if we could. It was a positive surprise from my perspective. I just wanted to see if you could provide, I know you said about the increased verticality, just trying to get a sense as to how we should be thinking about that line as we play out through the course of 2026 here.

Yeah, so thanks for the question. Yeah, we're very happy with the margin profile. I think, you know, whenever you follow Q4, you know, post-holiday discounting, I think the margin tends to improve a bit. You did see a larger portion of the retail, of our total sales being retail this quarter. And I think as we also noted in the release, you know, margin of third party products improved, we improved verticality. So kind of all those factors together led to improvements eventually.

Fair, but like, do we have a further upside, you know, as you get more verticality into the business? I know that's one of your 26 priorities. So, you know, do we think that there's still room to expand a little bit from here, not necessarily on a quarter to quarter basis, but for the year overall?

Yeah, no, look, I think, as we mentioned, densification obviously is a key margin on luck for us, right? So as kind of more stores turn on and verticality will continue to increase, and then the sales mix between kind of the direct-to-consumer channel of wholesale continues to get better, all else being equal, yes, I think there's opportunity there.

Yeah, I think the biggest factor is like what kind of headwind will we continue to face from price compression? I think that's the one variable that is harder to predict. But, you know, outside of that, yes, as we shift more to the retail channel and have more direct to consumer, the margins should continue to go in that direction.

Yeah, no, I understand the pricing conundrum out there. I'm just curious to know what you view as sort of the health of your customer base right now, whether you've noticed any change in purchasing patterns with the price of oil, with where it's gone, and gas prices, et cetera. Have you seen any changes in purchasing behaviors and patterns or sort of continued on as sort of expected from earlier in the year?

I mean, I think what we've seen is that, you know, Consumers continue to buy it. I mean, I don't want to call it a staple and go that far, but at least to date, there's been quite a bit of resilience from a volume perspective. Consumers continue to buy more at lower prices, but they continue to buy more, and we continue to see the volumes increase. I would say that's one of the strongest industry-wide tailwinds is the consumer.

Yeah. Okay. That's good to hear. Okay, well, thanks very much. I'll pass the line. Thanks.

Thank you. As a reminder, if you would like to ask a question, please press star, then 1. We have our next question from Brenna Cuntington with ATB Capital Markets.

Hey, thanks for taking our questions, and congrats on the results this quarter. Just looking at Massachusetts, so it looks like some of the pricing pressures in the state are starting to ease off a little bit just based on the state data. But the market does seem to be pretty challenging even with that. So, can you tell us a little bit more about how you're thinking about the market and the potential for license increases here? Like, are you seeing there's a lot of pockets in the States where there isn't access to cannabis that could be filled, like, with new licenses? Or are you thinking that this opportunity could be more on the wholesale front versus the retail front?

Sure. Thanks, Farhana. Great question. We're actually pretty excited about these changes in mass, and I deliberately took some time out in the script to point that out because these changes, I think, are going to bring a little more health as, you know, operators in the state, vertical operators in the state can create more density, where previously we were capped at three stores. So I think as we get more vertical sales and we have the ability to grow our store count, organically and now with partners, that state should actually get a little more healthy. I wouldn't say that you would open more stores. I think there are more than enough stores in the state total, and actually the state has a very long history of having a challenging timeline for store openings. So I think it's more of a consolidation play. And I think as time goes by, you're going to see that. And we look at that as a very, you know, good market for ourselves. And we certainly want to continue our densification strategy in that state.

Okay. Okay. That's a great color. Thanks for that. And then looking at Ohio, it's good to hear that the transaction volumes were up so strongly, quarter over quarter. With the hemp ban that took effect at the end of March, just curious, What you've seen so far since then, have you seen like a notable uptick in sales per store in April and so far in May?

I don't know if our stores are, you know, representative of the whole market. I think we've outpaced the market as a whole. So, you know, we have our own, I think, things that we're doing different from other players that allow us to stand out. So I'm not sure where the right barometer to measure that. But we do continue to see sales momentum in the state stay strong. I can't directly attribute it to the hemp ban, though. I can't speak to exactly what that might have been or if it's really noticeable. It might be one of the reasons that we're seeing that strength, but I can't say that for sure.

Okay, gotcha. And then just the last little one for us, if I can sneak it in here, regarding 280E. So your revenue base, roughly how much of it is attributed to medical? Or do you have a rough estimate yet?

Well, I think that we're still, the order is not crystal clear of how everything is going to be split up. So how do you treat a cultivation facility that is a medical license, sells to third party, and we don't actually get feedback as to where those products go, how much are sold to medical. And we actually don't even know the definitions of a lot of these things yet. So I think it's too early to just throw out some percentage and assume that that's going to stick. I think there's a lot of gray there and we're going to wait for more clarity before commenting on what that means. And further, I know everyone's, like, focused on medical because that's what's gotten, you know, that's what already got done. But, you know, in short order, mid-July, we're going to have a lot more clarity on the whole industry, and this split might not even matter.

Okay. Understood.

Thank you. I'll jump back in the queue.

All right. Thank you.

Thank you. We have our next question from Kendrick Tai with Canaccord Genuity. Okay.

Hi, good evening. This is Indigo Bayless on the line for Kenrith Teig. My question is related to your loyalty program. So I think given the strong loyalty program that you've clearly demonstrated here, are you planning to leverage this program to potentially expand margins? And with that higher degree of pricing power, can you give us an idea of the margin expansion you could achieve with the existing program and then maybe growth of the program as well?

Yeah, I would say that the main purpose of the program is not necessarily margin expansion. I think it's we're in such competitive markets, some of the most competitive markets in the country, and we're all fighting for customers. So for us, it's really about customer retention and making sure we have that unique experience and the right loyalty rewards that keeps the customers captive to our stores. And they keep coming back with, you know, great experiences. And we can keep them. I think that's the most important thing is customer retention, more so than trying to squeeze every last penny out of them. We want customers to come back every single time and have an amazing experience.

Yeah. And that would also add, look, I mean, you know, those customers that tend to shop more frequently, right, they do spend more, they tend to spend, you know, the verticality is improved with loyalty members. So we do see there is a margin benefit as well, but I think as Sam mentioned, priority is, you know, customer retention, customer acquisition, and, you know, that's what we're laser focused on.

Great. Thanks. I'll jump back in the queue.

Thank you.

And there are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.