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Hello and welcome to the Acreage Holdings fourth quarter and full year 2021 earnings call. My name is Emily and I'll be coordinating the call today. During the presentation, you will have the opportunity to ask a question by pressing star and then one on your telephone keypads. I now have the pleasure of handing the call over to our host, Steve Gertz, Chief Financial Officer at Acreage Holdings. Please go ahead.

Good morning, everyone, and welcome to the Acreage Holdings fourth quarter conference call. Joining me today is Peter Caldini, our Chief Executive Officer. Today's call will be archived on our investor relations website at investors.acreageholdings.com. Before we begin, I would like to remind listeners that today's call contains forward-looking statements subject to various risks, uncertainties, and other factors that could cause actual results to differ materially from those forward-looking statements. Any such information and statements should be taken in conjunction with cautionary statements in our press releases and risk factor discussions in our public filings found on CDAR and EDGAR, as well as our investor website. Any forward-looking statements reflect management's expectations as of today's date, and we assume no obligation to update them other than as may be required by applicable securities laws. I will now turn the call over to Peter.

Thank you, Steve, and good morning, everyone. 2021 was a transformational year for acreage. The acreage you see today is a much stronger company than the acreage that existed just 12 months ago. At the beginning of the year, we outlined three strategic priorities for our business. Driving profitability, strengthening our balance sheet, and accelerating growth in our core markets. I am extremely proud to share that as a result of the tireless efforts of our team, We exited the year having made exceptional progress on each of these key priorities. Looking first at our profitability improvements, in the first quarter of 2021, we successfully achieved our first quarter of positive adjusted EBITDA in the company's history and have now delivered four consecutive quarters of positive adjusted EBITDA. For the full year 2021, our adjusted EBITDA was 24.6 million, which is a significant improvement of $54 million in just one year from the adjusted EBITDA loss of $29.5 million we reported in 2020. These improvements were a result of our continued revenue growth with consolidated revenue up 65% to $188.9 million for 2021 compared to $114 million for 2020. While some of this revenue growth was due to acquisitions that occurred over the past 24 months, Our organic revenue growth from core operations was over 42%. While growing revenue was a key priority for acreage, we were also mindful of responsibly managing our costs throughout 2021. The revenue grew by 65%. Our management of cost of goods sold kept the increase in this area at only 42%, allowing us to improve our gross profit from 43% in 2020 to 51% in 2021. Additionally, we completed a rationalization of our corporate office costs early in the year and continue to manage our corporate costs at a level that is appropriate for the size of our business. Next, strengthening our balance sheet remained an important initiative for Acreage, and we achieved several milestones over the course of the last 12 months. First, we completed the seller of Florida assets generating proceeds of $60 million. We subsequently utilize some of the proceeds from the sale of Florida to reduce our near-term debt obligations with the repayment of 46 million in obligations during the second half of the year. We also made strong progress in strengthening our balance sheet by completing the sale of additional operations that were determined to be non-core and were a drain on financial and management resources. During 2021, we completed the sale of our Maryland operations and finalized agreement for the sale of our Oregon operations, which we're expecting to close in 2022. Most significantly, in the fourth quarter of 2021, we closed on a new $150 million long-term debt agreement. The proceeds of this new debt will be used to extinguish existing debt, fund working capital, and provide us with capital for future projects. In addition to extending our debt maturities out for four years and negotiating more financial flexibility, this new debt provides us with greater optionality as we move forward as there is no restrictions and penalties on early repayment. Lastly, we've made significant progress in accelerating our growth in our core markets. In New Jersey, we opened one new retail location and completed expansion of our cultivation facility in Egg Harbor increase our cultivation capacity at that facility nearly fourfold. This expansion will allow us to support and supply all the retail products required for our own dispensaries, while also enabling us to increase our wholesale market business in this rapidly growing New Jersey market. Although our second cultivation facility in Sewell was significantly damaged by Hurricane Ida, we are developing further plans to increase our cultivation capacity in this important state. We eagerly look forward to New Jersey introducing adult use in 2022, and we believe that with our current footprint and expansion projects, we are well positioned to be a leader in the state as soon as adult sales commence. We also look forward to New York introducing adult use in the future and have been planning in advance for this important change. We have a cultivation expansion project in Syracuse, New York, which we expect to be completed by the end of Q2. and will help position us ahead of adult use sales in that state. We're also currently looking at our network of retail dispensaries in New York to ensure that we're optimized and ready for the anticipated increase in business that will come with the development of this market. In 2021, our expansion projects were not just limited to states that have passed legislation enabling adult use sales in the future. On the cultivation side, we completed additional expansion projects in Pennsylvania and Illinois that will allow us to further access wholesale opportunities in these important markets. The work done to increase our cultivation capabilities across our markets will help ensure we have ample access to premium products for our own retail operations while also laying the groundwork to further expand our wholesale business in 2022 and beyond. On the retail side, in addition to our new dispensary in New Jersey, we acquired and converted two adult use dispensaries in Maine and rebranded two of our medical cannabis dispensaries to the Botanist in Connecticut, where we have market leading position in retail. We also recently completed the construction of our commercial kitchen to produce edibles in Massachusetts. Our growth in our core markets was also achieved through acquisition activities. Early in 2021, we acquired CWG Botanicals on the West Coast, providing us with high quality cultivation of processing assets in California and enabling us to enter the wholesale market in the state. Although we do not currently have plans to significantly increase our presence in that very competitive California market, we do believe it's necessary to participate in California to stay abreast of the developments in both product innovation and industry trends. During the fourth quarter, We expanded our footprint to Ohio through the acquisition of Greenleaf Group of Companies, establishing a leading vertically integrated market position for acreage in this large and important state. Our Ohio operations now consist of a 70,000 square foot cultivation and processing facility, in addition to five operational dispensaries, which have a combined estimated retail market share of approximately 20%. These high quality assets are a strong platform for future growth in the state, and we are excited to recognize the meaningful contributions Ohio will make to our business in our first full year of operations in 2022. Accelerating our growth in our core markets will be aided by further development of our brands and through new product launches. In 2021, we leveraged our top-selling product line of botanist gummies from Ohio and successfully launched them in Maine and Massachusetts. The botanist gummies are pectin-based, all-natural, and come in a variety of flavors and ratios. We also introduced other edible formats in the Ohio market, including botanist-brand fruit chews and cookie bites. In New York, we successfully launched the Botanist 85 live vape cartridges one of the only products of this kind in the market, in addition to RSO capsules. Next, our new premium brand, Superflux, launched in the second quarter of 2021. Superflux is a craft brand that captures the essence of cannabis through the meticulously crafted premium product line consisting of live resin, concentrates, and limited edition strains. The brand includes a diverse strain library and wide range of concentrates and is now available in Illinois, Massachusetts, and Ohio, reaching over 100 dispensaries in just three months. Finally, we announced a partnership between our hemp business and Medterra under their five brand, which allows us to benefit from their innovative pipeline, high-quality CBD, and significant e-commerce platform. This asset-light approach to entering this U.S. CBD market allows us to realize a low risk, high margin revenue stream to further improve profitability. Just recently, we launched the botanist by five CBD rosin gummies in innovative daytime and nighttime formats. As I stated at the beginning of the call, 2021 was a transformational year for acreage. We completed a significant number of deliverables from our refocus strategy while consistently delivering improved financial performance. The footprint we've established across our core markets has positioned Acreage as a leader ahead of potential near-term catalysts, such as pending adult use sales in several states. We believe we have made the necessary changes to our company to continue to improve our financial performance and capitalize on opportunities ahead in 2022 and beyond. We have strengthened our senior management team over the last year, which has continued with recent appointment of Dennis Kern as our new chief operating officer and the appointment of Steve Strom to our board of directors. Dennis is a leader with an impressive track record of implementing operational improvements in consumer-facing businesses, and we are thrilled to have him join us at such an important time in our growth trajectory. Dennis will be replacing Bob Dano, who will be retiring at the end of this month. Steve Strom also brings considerable expertise to our board, with decades-long corporate advisory experience and strong financial acumen. In 2022, we will continue to focus on our three key priorities. We expect to further accelerate our growth with new dispensary openings, cultivation expansion projects, and new product launches, and we'll continue to explore potential creative acquisitions where we see strong opportunity. Before I turn the call over to Steve for a detailed look at our financials for the fourth quarter of 2021, I want to finish as always by thanking our team. This was truly a fantastic year for Acreage and thanks to their hard work and dedication. They're a wonderful team who have worked tirelessly to establish a strong platform we built in 2021 to bring the best experiences possible to our patients and customers. I am incredibly excited for all we will accomplish together in 2022. I will now turn the call over to Steve to discuss the financial results for the quarter in more detail before we open the call to questions.

Thank you, Peter, and good morning to everyone again. Revenue for the fourth quarter of 2021 was $58.1 million, an 84% increase compared to the fourth quarter of 2020. as well as a sequential increase of 21% compared to the third quarter of 2021. Year-over-year growth was aided by the acquisitions of Ohio and California made during the past 12 months, and by the consolidation and conversion of retail locations to adult use in Maine, and it was somewhat offset by divestitures and revenue declines of operations being held for sale. Excluding the impact of the acquisitions, divestitures, and the performance of operations being held for sale, organic revenue growth was 33% for the fourth quarter of 2021 when compared to the fourth quarter of 2020. The additional revenue available from completion of expansions at several of our cultivation facilities, coupled with increased demand and production across various states, drove this revenue increase. Retail revenue increased 69% for the quarter compared to the fourth quarter of 2020, and was driven primarily by the acquisition of Ohio on October 1st, 2021. Increased demand and production across states. New store openings since the fourth quarter of 2020. And the consolidation of several main dispensary locations and their conversion to adult use sales. Retail revenue was negatively impacted by declines in the non-core state of Oregon and the sale of our Florida operations. Sequentially, Retail revenue for the current quarter improved by 11.5 million, or 37%, compared to the third quarter of 2021. Wholesale revenue increased by 141% for the quarter compared to the fourth quarter of 2020 due to our increases in cultivation capacity, as well as the maturing operations in Pennsylvania, Massachusetts, and Illinois cultivation facilities, resulting in higher yields and improved product mix in each of these respective markets. Additionally, our wholesale operations in California and Ohio that were acquired during 2021 contributed to an increase in wholesale revenue in the quarter. Sequentially, wholesale revenue for the current quarter declined by 1.5 million or 9% compared to the third quarter of 2021 due to the timing of crop maturities and downward pressure on wholesale pricing in select markets. For the fourth quarter of 2021, wholesale sales represented almost 27% of our total revenue. Gross profit for the quarter was $27.6 million, a 90% increase compared to the fourth quarter of 2020. Revenue growth and cost efficiencies achieved at our production facilities drove the increase in gross profits. Gross profit continues to benefit from the vertical integration of our operations as a greater portion of the product sold at our retail dispensaries is sourced internally from our own production and processing operations. Gross profit generated from this internally produced product includes both the wholesale and retail margin and does not contain the external wholesale margin that would be paid if we sourced the same product from external vendors. Gross margin during the quarter was 47% compared to 46% in the fourth quarter of 2020. Gross margin, however, was down sequentially from the third quarter of 2021 due to a shift in the relative sales performance between our different states and greater pricing pressure in select markets. Additionally, we increased staffing in preparation for the completion of the expansion of our egg harbour cultivation facility in New Jersey and the opening of our edibles kitchen in Lemonster, Massachusetts, which increased our cost of goods sold for the near term. Total operating expenses for the quarter were $63.2 million, an increase of $13.1 million or 26% from the fourth quarter of 2020. However, excluding equity-based compensation expenses, losses and write-downs, impairments and depreciation and amortization expenses, all of which are non-cash in nature, total operating expenses for the fourth quarter of 2021 decreased 400,000, or 2%, compared to the corresponding period of fiscal 2020. Year-over-year increases in compensation and depreciation expenses as a result of the expanded operations were offset by reduced administrative costs. The overall rate of increase in operating expenditures was significantly lower than the rate of increase in revenues and is due to Acreage's expanded operations through growth and acquisitions. Consolidated EBITDA during the quarter was a loss of 32.9 million compared to the EBITDA loss of 36.7 million in the fourth quarter of 2020. Adjusted EBITDA, which excludes impairments, equity-based compensation expense, and unusual items that are not expected to recur in future periods, was 8.5 million for the fourth quarter of 2021. A significant improvement compared to the adjusted EBITDA loss of 3.5 million in the fourth quarter of 2020, and a sequential improvement from adjusted EBITDA of 6.5 million in the third quarter of 2021. Adjusted EBITDA from core operations, which excludes markets where the company has entered into definitive agreements to exit, and startup ventures, such as beverages and CBD, was 9.8 million for the current quarter, indicating that the company's core markets are still being negatively impacted by its non-core operations. Lastly, net loss attributable to acreage for the quarter was $40.4 million, a $3.5 million decline compared to the fourth quarter of 2020. Revenue growth and gross margin improvements combined with reductions in equity-based compensation expenses were more than offset by other non-cash expense increases and greater interest charges. Closing with our balance sheet, We ended the quarter with $44.3 million in cash and restricted cash on hand. During the fourth quarter of 2021, we secured a $150 million credit facility with a syndicate of lenders. Under the terms of this new credit facility, $100 million was available for immediate use and a further $50 million is available in future periods under a committed accordion option once certain predetermined milestones are achieved. We used a portion of the proceeds to repay existing debt and extending our debt repayment obligations to the end of 2025. The remaining funds will provide additional working capital and will be used for future capital projects. As of year end, $75 million was drawn under this facility. The remaining current availability under this facility of $25 million, together with the cash on hand of $44.3 million, provides funding of almost 70 million until the end of 2022, at which time we expect the further 50 million committed accordion to also be available. Our financial situation at the end of 2021 is vastly improved from how we started the year, and maintaining this strong position will be a key priority for us as we execute on the opportunities ahead. That concludes our prepared remarks. With that, I will now have the operator open the line for questions. Operator, please go ahead.

Thank you. If you'd like to ask a question, please do so now by pressing star followed by one on your telephone keypad. If you change your mind and wish to withdraw your question from the queue, please press star followed by two. When preparing to ask your question, please ensure that your device and your microphone is unmuted locally.

Our first question comes from Aaron Gray from Alliance Global Investors. Aaron, please go ahead.

Hi, good morning, and congratulations on the EBITDA improvement in the quarter. So first question for me, yeah, no, absolutely. First question for me on the gross margin side. So I know you guys mentioned some of the sequential pressure there was due to some mix between states and some pricing pressure, but also just on supplementing of the high quality fire you guys had mentioned in the last quarter and on today i just want to get a better picture in terms of kind of looking forward you know how to kind of judge all the pieces there between you know what makes you expect in sales uh the price of pressure you've seen in some markets and then the ability to kind of have that flower produced in-house versus supplementing it and how we look at the margin profile overall whether or not it's going to be more flat lined in the first half and then see some uptick once new jersey comes online or higher kind of looking at it thanks

Yeah, no, the gross margin obviously came down from where we were Q2 and Q3 of this year. The bulk of the decline was really due to pricing pressures we experienced in a number of key markets. You know, Illinois and Massachusetts and to some extent Maine saw quite a bit of pricing pressure, which brought revenue down and also brought gross margin down. On a cost base, we're still relatively consistent. Our cost of production hasn't changed that much. But the predominant decline in margin was really due to that pricing that we've seen. Going forward, we said we expect to maintain margins of around the 50%. We're obviously below that now. As we move forward, particularly with New Jersey, where we've got an integrated footprint, we'll be able to capture both the wholesale margin and an increased share of the retail. We expect that margin to come back up. In the long term, we retain that goal of 50% or so.

All right, great. Thanks very much for the color. As we wait for New Jersey, looking ahead to New York, which hopefully sales begin in 2023, over the past couple weeks and months, we've seen some more transparency in terms of how that market might evolve, both in terms of you know, hemp growers being able to grow, you know, adult use cannabis and now more recently seeing, you know, the retail licenses being, you know, catered towards social equity and past cannabis convictions. So just want to know in terms of how you're seeing, you know, that landscape evolve and how you're looking to position, you know, acreage, both you mentioned in terms of the stores, but also from the wholesale perspective and how you feel, you know, these recent, you know, announcements by the regulators might, you know, impact the market overall. Thanks.

Yeah. Thanks, Aaron. I think that's a good question. We, we support, any type of social equity initiative. And, you know, I think it's still early in the process what exactly that's going to look like. But, you know, if you look at the New York market, it's going to be a very large market. It's going to be a tremendous opportunity for, you know, existing players as well as new players as well. And, you know, for us, we only see that as positive from the standpoint it could open up more wholesale opportunities for us. But I think the most important thing is to really capture the full potential of the New York market. You really have to have a good presence, not just the individual players, but as an overall industry. And I think this is just going to add to it. So to me, I see that as positive. It does open up more market opportunities for us from a wholesale standpoint. um and you know hopefully with greater uh presence it's also going to reduce the amount of illicit market in that state really capitalize on the true market opportunity there all right great thank you very much for the color i'll jump back in the queue and best luck in 2022. thanks next up we have a question from matt bottomley from mechanical ingenuity matt please go ahead your line is open

Good morning, and thanks for taking these questions. Just wanted to get maybe a little bit more color on New Jersey. I know you mentioned elements of it in your prepared remarks, but given that most are anticipating a launch sometime in the next month or two here, and some of the headwinds you've faced from the weather issues at your location, maybe just balancing how you think you're going to be able to come out of the gate in that market. One of your peers had mentioned they think the first six months or so will be more of a modest growth out of the gate. I'm just curious how you think this market will launch given relatively nascent at least retail infrastructure at this point.

Yeah, I think, you know, as I said in the prepared remarks, New Jersey is a tremendous opportunity for us. We're well established with the three operating dispensaries. We completed the The expansion at our Egg Harbor cultivation facility, we're working on a second one, which we hope to have finalized by the end of this year. In terms of the market growth, I also would agree that I think the transition to adult use, I think there's going to be an immediate bump in terms of opportunity, but I think it's going to evolve over time and it's not going to hit full potential within the first six months as new dispensaries come online. I think that does open up opportunities for us at wholesale, but it is still a fairly undeveloped market in terms of the retail and dispensary presence. So I would agree with that. I think it's going to take a, it's going to evolve over time to build that up. But I think you will see an immediate impact that's going to continue to progress as we go through the year.

Great, very helpful. And then just a second question for me on know how you see your existing uh portfolio by let's say geography uh relative to your your your capital position now so obviously a much better position now than a year ago but there still is a number of ancillary markets so i'm just curious if you see other dispositions needed and i actually had a question come in from a an account this morning, which I think is interesting, is if you were to decide to just dispose of something that's considered maybe more material than ancillary, how does your relationship with Canopy fit into that if there was a more material market that would ever rise on the table? I'll leave it there, thanks.

Yeah, over the last little while, we've been refocusing the business on our core assets, ones where we think we have an opportunity to win in those markets and be very successful. And as a result, we've disposed of number of smaller operations you know Florida North Dakota Maryland we've got transactions in place and agreements in place for the sale of our Oregon operations and then we've got some some vacant dispensaries in Michigan that we'd also like to get to get rid of if we can get the right price at that point in time I think we're done selling you know we've got a we've got a nice footprint in a very focused market where there's a lot of opportunity either because You know, the strong medicinal markets that are likely to move to adult use in the next few years or in the cases of New York, New Jersey and Connecticut, those decisions already made. We're just waiting for the transition from medicinal to adult use. So as far as disposing of the assets, not likely on the agenda anymore. More likely, you know, now that we've got a much stronger balance sheet, much stronger cash position is looking for acquisition opportunities, you know. First focus would be in those core markets where we can increase our presence with acquisitions that financially make sense, deliver a good return, and we're allowed to by the regulators given caps on locations. We'd look further afield after that, but I wouldn't say that's a priority right now. We think we've got a very, very strong footprint in the states where we operate.

know and the challenge to us now is to expand our business in those states and take advantage of the opportunities that exist for us right there okay understood and any other considerations uh i just mentioned with um the canopy relationship if uh that i know you guys operate independently obviously so i'm assuming that's not uh anything that would be considered if there were further dispositions uh yeah no further dispositions we've got a strong relationship with canopy

obviously operating within the balance of what's allowed. But we share in strategic discussions on what brands are exciting, what acquisition opportunities may be available for either us or them. And then each organization operates independently to make those own decisions on how they might proceed.

Got it. Thanks again. Our next question is from Glenn Mattson from Leidenberg Thalmann.

Glenn, your line is open.

Yeah, thanks for taking the questions. Just looking at some of the same store sales trends, can you give us, you know, I saw same store sales growth down a little bit in the quarter and then the average check growth down for kind of like the third straight quarter. I know there's softness in various markets, but can you call out, is there any markets that in particular that you would point to that, you know, that were softer or stronger within those, you know, within the framework of those numbers?

I'm not going to give specific details by market, but I would say if we look at our portfolio, revenue pressure is really in Massachusetts, Illinois, and Maine. For the most part, due to competitive pricing pressures, prices have come down. In Maine, we're seeing more product coming in from, I'll call it alternative sources, which is hurting our ability to move product. illinois we had a great wholesale business and some some one-off transactions in the third quarter so on a sequential basis illinois has come off somewhat uh you know but still above our long-term trend we're just um we're seeing pricing pressures in that market and then massachusetts is a difficult market uh pricing continues to be to be difficult as uh all of the players continue to fight for market share so you know if i would look at our results on the revenue basis at least sequentially Those would be the three markets that are probably causing us some of the softness in our revenue side. Obviously, on an annual basis, year over year, we're seeing growth in all of our markets, so we're very happy about that. Sequentially, there's been a little bit of a softness.

Great. And then maybe can you touch a little bit – I think this is the first full quarter of Ohio, so – And that business has been strong and your market share there is solid and it's an early stage market. So I wouldn't expect much pricing pressure there, but maybe you can clarify that. And then, you know, but I guess it looked about flattish sequentially. So can you give us just a better understanding of your position there and how you feel about that market?

Yeah, we're ecstatic to complete the acquisition of our Ohio partner. You know, that brings a market leader in that state into our consolidated results. know strong revenue platform limited opportunities for growth right now in that market since it still is uh just a medicinal market and we're capped in terms of a number of dispensaries as well as size of our cultivation long term we still expect growth from that market uh but for now you know growth will be you know given our position uh and given the position of that market uh growth will be somewhat muted it will continue to be positive but we're not going to see the growth we're experiencing in markets like New Jersey, for instance, where there's an impetus for change in those markets occurring.

Great. Thanks for the color. That's it for me.

As a reminder, for any further questions, please register these now by pressing star and then one on your telephone keypads. At this time, we have no further questions in the queue, so I'll hand back to Peter to conclude today's conference call.

Thank you very much. So once again, as I highlighted in the opening remarks, I mean, 2021 was a transformational year for acreage. We're really excited about the solid foundation that we've created during the year, and I think it really positions us well for 2022. We really look forward to interacting with a lot of you and appreciate your time on the call. And I also like to take the opportunity specifically to thank, you know, our employees, what they've been able to accomplish during, you know, what was a challenging 2021 and 2020. And I think we are ecstatic about our position in the marketplace, and we're looking forward to taking advantage of market opportunities in 2022.

Thank you everyone for joining us today. This concludes our call. You may now disconnect your lines.