Ayr Wellness Inc

Welcome to the AIR Wellness 3rd Quarter 2021 Earnings Call. Joining us today are AIR CEO Jonathan Sandelman, the company's CFO Brad Asher, and the company's co-chief operating officers Jennifer Drake and Jason Griffith. The company will discuss forward-looking matters on this call, including targets for revenues and adjusted EBITDA. This forward-looking information is subject to the assumptions and risks as described in the company's management discussion and analysis for the quarter ended September 30th, 2021. As well, we remind you that adjusted EBITDA is a non-GAAP measure. We refer you to the reconciliation to GAAP measures and other disclosure concerning non-GAAP measures contained in AIRS management discussion and analysis for the quarter ended September 30th, 2021. I will now turn the call over to AIR CEO, Jonathan Sandelman. Please go ahead.

Good morning, everyone, and thank you for joining our conference call today. We have a lot to cover today in terms of our record results in our operations, despite headwinds in some of our markets. Some very exciting milestones in our branded consumer business and our most recent acquisitions. We consistently see growing demand for cannabis, but ebbs and flows in supply and demand can create fluctuations in pricing. Taking a step back, increases in supply in cannabis are often responding to anticipated demand catalysts like adult use legalization or the timing of dispensary openings. Supply is there for good reasons. But when supply outpaces demand, you could see near-term price fluctuation. We've said again and again that we seek to be the largest scale cultivator of high-quality cannabis in the United States. First and foremost, we want to produce the best product for our customers because in cannabis, it's all about what's inside the box. We have seen high-quality flour maintain price across the markets. In our experience, quality serves as a mitigant to price volatility, but it does not eliminate it. And across CPC history, brand loyalty is another way to mitigate price volatility. In our business, we have tried to carefully plan the timing of capacity addition in our key states to match the anticipated increases in demand from the broader market in our own stores. Vertical integration is a real benefit to help balance out ebbs and flows in the wholesale market, as we can redirect products through our stores when the wholesale market is soft. The supply and demand imbalances that have recently impacted wholesale prices may be transitory, or they may persist into next year. We want to emphasize again that supply exists for a reason. Adult use demand is around the corner in Pennsylvania, New Jersey, greater Boston, and Florida. Because of these temporary timing mismatches, prices may continue to be volatile this quarter and perhaps in 2022. As we've said before, quality and branding mitigate these impacts, which is why we are excited to introduce you today to an updated air House of Brands. The unveiling of our new corporate, retail, and CPG brands represent the next phase in the evolution of our company, with brand designs to represent the quality of what's inside the box. Our well-calibrated portfolio of power brands, which consist of Kind Premium Flour, Origin Extract, Stick Pre-Roll Company, and Levy & Fuse Seltzer, reflect the very best of cannabis, and are developed from data-driven, consumer-centric insights. They represent leading market categories for current and future consumers, alongside being the highest quality, which is why we have invested the bulk of our marketing and resources into building and scaling these brands across key markets. We are also unveiling a collection of core national brands to offer variety in forms, dose and experience. These core brands address large audiences in the same power categories, but in a much broader fashion. We're starting from an already strong foundation with strong existing wholesale businesses in Massachusetts and a growing business in Nevada, Pennsylvania, and Arizona. We ended the third quarter with our products in over 350 doors, up from 100 at the beginning of the year. And while I'd love to walk you through the entire portfolio in this call, that is more than we have time for this morning. So please have a look at our new website and investor deck, which showcases the brands in detail. Lab, we are unveiling today an updated air retail concept and corporate brand. We've built this retail concept very intentionally for the customer experience in our stores to reflect the quality of our products and our commitment to our local community. At AIR, we are committed to thinking long-term. We understand that brand building in this industry is still in its early stages. But the reasons that we've committed to this path is because we know that great products and great brands create their own categories and consumer segments. And we continue to invest in our quality, our brands going forward. With that, I'll turn it over to our co-chief operating officer, Jason Griffith, who will walk us through the details of how we're building the foundation for this new house of brands.

Thanks, John. With the rollout of our new national brands, executing against our goal of being the largest scale producer of high-quality cannabis flower in the United States is more important than ever. Consistent quality across markets is critical for brand building. We continue to make major investments in our cultivation operations, facilities, and talent to build that foundation for successful brands. We have several large capital projects ongoing in Massachusetts, New Jersey, Pennsylvania, Ohio, Arizona, and Florida. All in, when these projects are complete, we will be doubling our cultivation and production square feet from 554,000 to 1.2 million square feet and tripling our biomass capacity from just under 100,000 pounds annually to over 300,000 pounds, all in support of our national brand. As you can imagine, given the ongoing supply and labor shortages, port delays and other factors, We have seen some projects delayed even beyond the cushion we previously factored in. In particular, our cultivation projects in Massachusetts, New Jersey, and Ohio are likely to slip a quarter versus our prior plan, but we are pushing to move them forward as quickly and efficiently as we can. We invested close to $27 million in the third quarter and CapEx and plan to spend another 125 to 150 million over the next 12 months to complete these and other projects. Just as important, we hired several senior people in lean manufacturing, purchasing, production, and quality control to lead this process. We have also centralized and created a national wholesale platform to streamline our sales efforts. I want to spend some time specifically on Florida, since it is our largest cultivation and the one we get the most questions about. We continue to make steady progress on the cultivation there, including physical improvements such as new lights and panels, and process improvements like implementing our SOPs and quality controls. These improvements have resulted in increased yields and better quality flower in terms of THC content and terpene profiles. As you can imagine, summer is the hardest time to grow in hot, humid Florida, so progress is not always in a straight line, but the overall trend is up and we are now consistently harvesting 22 strains. This fall, we also planted our first 10 acres of hoop houses which will significantly increase our biomass production beginning in early 2022 and leave more of our hybrid greenhouse space available for premium flower cultivation. We have another 10 acres set to come online in mid-2022. This increase in supply is critical to bringing our product mix, inventory, and retail productivity to a level we can be proud of. Which brings me to the retail business, where particularly in Florida, we continue to expand our footprint. Overall, we are now operating 65 dispensaries across our eight state footprint, 42 of which are in Florida. We are targeting 50 Florida stores by January 2022 and have LOIs or leases on an additional 15 bringing us to at least 65 by the end of 2022. As we unify our retail stores under the new Air brand, we will be bringing the best retailing practices from across our markets to our full retail portfolio to drive improved store-level productivity and margin. With five of our eight markets yet to convert to adult use, we see retail as a tremendous growth opportunity for years to come. In the near term, retail growth drivers will come from the launch of our flagship adult use stores in greater Boston early next year, followed by the adult use conversion in New Jersey. In Florida, while productivity per store is not yet where we'd like it to be given supply constraints, we know that it is only temporary. So securing the best locations now in this market before adult use is the priority. We will look to convert those 50-plus stores to air-branded stores in 2022. Now I'd like to turn the call over to Brad to run through the third quarter financials.