Ayr Wellness Inc

Welcome to the AIR Wellness, Inc. First Quarter 2023 Earnings Call. Joining us today are AIR's President and CEO, David Goubert, and the company's CFO, Brad Asher. The company will discuss forward-looking matters on this call, including targets for revenues and adjusted EBITDA. This forward-looking information is subject to assumptions and risks as described in the company's management discussion and analysis for the first quarter ended March 31st, 2023. As well, we remind you that adjusted EBITDA is a non-GAAP measure. We refer you to the reconciliation to GAAP measures and other disclosures concerning non-GAAP measures contained in AIRS management discussion and analysis for the quarter ended March 31st, 2023. I will now turn the call over to AIRS President and CEO, David Goubert. Please go ahead.

Good morning, everyone, and thank you for joining the call today. I continue to be impressed by the strong foundation we have built at AIR and what I've seen our team accomplish in my short tenure here. We have already begun to make progress on our operational and financial goals, as evidenced by quarter-over-quarter revenue growing by 3% and adjusted EBITDA growing by 9%. and posting our third straight quarter of positive cash flow from operations. From a year-over-year perspective, we grew revenue by 18% and adjusted EBITDA over 60%. I am pleased to report that our adjusted EBITDA margin reached 22.4% this quarter, against 21.1% in Q4, on our way to our target of 25% by end of 2023. I am happy to share that last week we announced an agreement to provide significant liquidity improvement for the next handful of years via amendments to contingent consideration for the acquisition of GSD New Jersey and Sierra Naturals, as well as resolving what otherwise would have been a potentially significant no-term dilution event for our shareholders related to our acquisition of GSD New Jersey. The agreements align with our goal of maximizing the financial health of the company and allow AIR to remain flexible as we continue to scale and optimize the business. Moving to our operations, we remain laser focused on improving the short-term financial health of the company through our 2023 optimization plan, while at the same time, driving long-term revenue growth and developing our key assets, which we are calling our Grow Forward Plan. I'd like to highlight the key elements of both our 2023 optimization plan and our Grow Forward Plan during our call today. The optimization plan, which outlines how we intend to drive short-term financial performance and cash improvement, includes four key elements. sales growth, which is expected to lead to improved operating leverage, stronger margins, cost reduction, and unlocking working capital with better inventory management. I'll talk more a bit later about the first element, the sales growth, as we review our state-by-state performance, but I'm glad to report that we grew sales 3% sequentially in Q1 during a largely soft quarter throughout the US cannabis industry. The second objective in our 2023 optimization plan is to improve gross margin across our footprint by enhancing our internalization rate, optimizing pricing and purchasing, reducing discounts, and creating better connectivity between our supply chain, retail, purchasing, and wholesale functions. A great example of these initiatives is in Nevada and Pennsylvania, where these key initiatives are already resulting in meaningful improvements to financial performance. In Nevada, for example, this was reflected by an 8 percent quarter-over-quarter improvement in adjusted gross profit dollar and 29 percent quarter-over-quarter improvement in adjusted EBITDA dollars, despite slight sequential revenue. And in Pennsylvania, despite top line decreasing low single digits quarter over quarter, we grew our adjusted EBITDA by almost 20%. These initiatives are benefiting from our new organization structure, where our market GMs have a 360-degree view on all state operations, boosting connectivity between different functional areas of the business. The third objective of our plan continually working to reduce SG&A and other operating costs, while deploying significantly reduced cap expense to the tune of $30 million for calendar 2023. We took several actions in the first quarter, including a right-sizing of our capacity and optimization of our workforce, and better leveraging our national platform to drive efficiencies and cost reduction. Quarter over quarter, adjusted SG&A as a percentage of sales has dropped from 37.1 percent to 33.1 percent. This only reflects the partial benefit from the cost-saving initiatives implemented in Q1, so we expect to see further improvement in SG&E margin throughout 2023. The last of our four key objectives in our 2023 optimization plan is to unlock working capital through better inventory management. We are actively reversing the trend of inventory and working capital built that we saw over the last few years as reflected by a 3 million inventory reduction quarter over quarter. As we shared in our last goal, considering the lead time in our industry, these actions take time to bring results, and we anticipate further reduction of inventory levels, particularly as a percentage of sales, throughout the year as we continue to execute our plans. Better inventory management is expected to lead to more cash on hand and improved cash flows. Moving now to our Grow Forward plan. Over the past few months, we have introduced to our teams and started implementing our Grow Forward plan, a collection of mid- to long-term initiatives aimed at driving strong revenue growth during the second half of 2023 and beyond, and developing our key assets which, aside from our team of talented individuals, includes our loyal customer base, our powerful brand, and the quality of our products. Some of these initiatives are already driving improved results, as reflected by the modest quarter-over-quarter revenue growth, despite broader industry softness. However, the majority of the benefits will materialize in the second half of 2023 and thereafter. The grow-forward plan includes rationalizing our brand portfolio and building equity in our CPG brands, developing our customer algorithm and upgrading our retail expertise and customer experience to drive loyalty, and improving product quality. The combination of these initiatives is designed to further cement AIR as a retailer of choice and a house of brands. across each of our markets over the medium to long term. To execute this plan, we've been highly focused on team and talent, building a team that can deliver on our key objectives. I am very pleased to share that we now have a new company leadership organization fully in place where we are pairing functional leaders with P&L owner in our individual markets to provide a 360 degree view focused on the health and growth of the company. To that end, I am pleased to announce some key new hires and promotions across the organization. Andy Cho, our Chief Digital and Marketing Officer, is focused on building a digital ecosystem around the customer journey, driving customer acquisition, retention, and loyalty, as well as building our CPG Brands portfolio. Kenny Stoll, our Chief Supply Chain Officer, is leading our efforts across operations to run lean and efficient while prioritizing demand planning and product quality. Alex Gonzalez-Burke, our VP of Retail Performance, is charged with improving the customer experience and driving customer loyalty through a continually improving retail channel with the goal of ultimately driving higher revenue per customer. We appointed four regional general managers via internal and external sources who will have full P&L ownership across their respective markets. And we realized multiple internal promotions and new hires across key departments, including retail excellence, client development, and supply chain, among others. Although it has only been a couple of months since our last conference call, I am proud of how our team is gelling together, the early progress made, and everyone's commitment to our 2023 Optimization Plan and our Grow Forward Plan. I'll now turn the call over to Brad to walk us through the financials for the first quarter of 2023.

Brad? Thanks, David. As a reminder, we closed on the sale of our Arizona assets on March 27th. with the P&L activity for the quarter netted against the loss from discontinued operations. Therefore, I will be speaking to results from continuing operations which have Arizona stripped out of both the current period and comparative period. Q1 sales, 117.7 million, represents an increase of 3.4 million, or 3%, compared to prior quarter sales, 114.3 million. slightly favorable to our guidance of flat revenue quarter over quarter. Sequential increase was primarily driven by improvement in our wholesale business, growing from 10% of sales to 12% of sales, along with further gradual improvement in retail, with retail transactions increasing approximately 4% quarter over quarter. Same-store sales for stores open greater than 12 months were roughly flat quarter over quarter, On a year-over-year basis, Q1 sales represents an increase of 18.2 million, or 18 percent, compared to 99.5 million last year, with the increase primarily driven by retail growth in Florida and New Jersey. Q1 gross profit was 48.3 million compared to 53 million in the prior quarter. Q1 adjusted gross profit, a non-GAAP measure, with $65.3 million representing a sequential decrease of $1.3 million or just under 2%. Q1 adjusted gross margin of 55.5% is in line with our expectations for the quarter of maintaining in the mid-50% range and was the result of a mix of both price stabilization and minor price compression in select markets. In addition, Margin pressure associated with inventory reduction efforts, most notably in Massachusetts, was partially offset by a further increase of internal branded retail sales, which reached 69% in Q1, up from 66% in Q4. Absent Florida, that same metric increased from 47% to 51% sequentially. Q1 adjusted gross profit represents an increase of 13.3 million, or 26%, versus last year, driven by the increase in sales as well as optimization efforts and the ongoing shift to internal branded retail products. Loss from continuing operations was 21.7 million in Q1, which is consistent with prior year. Q1 adjusted EBITDA of 26.3 million represents a sequential increase of 2.2 million, or 9%, ahead of our guidance to be flat quarter over quarter. Adjusted EBITDA as a percentage of sales increased 130 basis points to 22.4% in Q1, relative to 21.1% in prior quarter. The sequential improvement was largely due to cost-saving measures resulting in a decrease of adjusted SG&A expense, a non-GAAP measure, from 42.4 million in Q4 to 38.9 million in Q1. As David mentioned, adjusted SG&A as a percentage of sales improved from 37.1% in Q4 to 33.1% in Q1. Q1 adjusted EBITDA represents an increase of 10.3 million or 64% year-over-year. As a percentage of sales, adjusted EBITDA increased year-over-year from 16.1% to 22.4% driven by the expansion in adjusted gross margins as well as the reduction in adjusted SG&A. We anticipate EBITDA adjustments in future quarters will fall back in line with prior year trends as nearly half of adjustments within EBITDA Other in Q1 came from one-time severance payments. Moving to the balance sheet, we ended the quarter with a cash balance of $96.5 million, which is a sequential increase of $19.7 million, or 26%. The increase was driven by the net proceeds of $18 million from the Arizona sale and $10 million from the closing of a real estate financing transaction, which were partially offset by repayments of debt principal and CapEx, totaling approximately $14 million in aggregate. The real estate financing transaction was an upsizing of an existing mortgage with a community bank. which originally closed in Q1 of last year with a fixed interest rate of 4.625% and proceeds of 26.2 million. The upsizing represents another 10 million of proceeds with a fixed interest rate of 8%, with this interest rate applied only to the incremental proceeds. Operating cash flow from continuing operations was a positive 8.6 million, partially due to the work on inventory optimization contributing $3.3 million to operating cash flow. This represents the third quarter in a row with positive operating cash flow. We expect further improvements through 23 and expect to have positive operating cash flow for the full year, although there may be quarterly swings through the nonlinear trend of working capital outflows such as tax payments. As David referenced at the top of the call, we are pleased to announce the amendment of contingent consideration relating to both the GSD New Jersey and CIRA Naturals acquisitions. We think this is a great outcome for all stakeholders as it both defers approximately $28 million of cash pay obligations through 2024 and avoids the material amount of equity dilution. As it relates to the GSD New Jersey Earn Out Amendment, we also entered a contingent deferral of seller notes issued to the GSD New Jersey Seller's Rep at the time of acquisition. which would defer another $27.65 million of maturities for two years. The total two-year deferral achieved to date between the promissory notes and CERA earn-out amounts to approximately $55 million in the aggregate and preserves significant cash on the balance sheet, which is the company's top priority. In addition, we announced last week that we have engaged Mollis & Company to advise us on seeking further extensions of our debt maturities. Looking ahead for the second quarter, We expect sales and adjusted EBITDA to grow at a similar sequential growth rate as they did in Q1. We expect to further ramp revenue and adjusted EBITDA in the second half of the year and generate positive cash from operations for calendar year 23. With that, I'll now turn the call back to David.

Thanks, Brad. We strongly believe in the states where we operate. An anticipated growth of revenue and or adjusted gross profit dollar in each of them this year. Let's take a quick look at each of our markets. In Florida, we continue to focus on four key objectives. First, continuing to grow our store footprint. We have already opened a total of seven stores this year, and we plan to open another 10 stores before year end, bringing our total footprint to 70 stores across the state. increasing same-store sales in our existing store network through improved product quality paired with a better utilization of our pricing structure, preparing for the eventuality of adult use in the state, and rebranding our stores to air cannabis dispensary over the summer, which we kicked off last week with our first communications to our customer base. In Nevada, a key market for us, We continue to maintain outsized market share and plan to invest further in our talent, category management, and the customer experience in our stores. We have leaned into our purchasing power in the state, which has produced lower input costs, and we are leaning heavily on data insights to create a more effective promotional structure. This strategy has already led to tangible benefits to our financial performance in Q1, and we expect further upsides in Nevada as we improve our retail performance, as well as our cultivation and production capabilities. In New Jersey, we saw slight revenue and growth profit improvements in Q1. We expect growth to accelerate in the coming quarters with the expansion of our Eatontown store at the end of May, which will increase occupancy of the store from 22 to 162 people and nearly three times the number of POS as well as strong retail performance in Woodbridge and Union. Next, in massage sets, we put a lot of emphasis in Q1 on right-sizing our capacity, selling through our older inventory, which impacted gross margin, and improving our wholesale presence. Moving forward through our new GM structure, we're strengthening the connectivity between wholesale, purchasing, retail, and production and are investing heavily in increasing customer traffic to our retail locations. In Pennsylvania, while our top line decreased low single digit quarter over quarter, we focused our efforts on strengthening the integration between our supply chain, retail, purchasing, and wholesale operations to improve adjusted EBITDA in the state by almost 20%. And we are prepared for an expected adult use transition in the coming years. In Illinois, our focus remains on further optimizing our existing two locations. We see opportunity to potentially scale in the future, but it's not a key priority for 2023. We view Ohio as a state with some of our strongest growth potential and another market where we can build meaningful depth and market share. Our 58,000 square foot cultivation facilities online And we realized our first wholesale revenue at the end of Q1 with positive review from our customers regarding the quality of our flour. We're bringing rooms online in a phased and pragmatic approach. During the quarter, we announced the option to acquire two dispensary licenses in the state that are expected to come online in the second half of 2023 to build out our virtual presence ahead of adult use. Lastly, Connecticut remains the 2024 story, and we're excited by the opportunity to build out and commence operations in this new adult use market. In closing, I'd like to thank our entire team for their continued commitment to the business and to our patients and customers. We are very confident in our asset base and our ability to maximize these outputs. We remain laser focused on generating positive operating cash flow, improving the financial health of the company, and building for future growth, and we look forward to providing further updates on our progress during our upcoming conference calls.

Thank you.

We will now begin the analyst question and answer session.

To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. Analysts are asked to limit themselves to one question and a follow-up, then return to the queue if they would like to ask more questions. To withdraw your question, please press star, then 2. The first question comes from Andrew Semple with Echelon Capital Markets. Please go ahead.

Hi there. Good morning and congratulations on the results. First off, just want to start with, I guess, the impressive market share gains we've seen in Florida. AIR's market share in that state are now approaching levels that would be consistent with your share of dispensaries open across the entire state. I guess as your stores begin to approach the statewide average in terms of volume sold, do you still see more room for further market share improvements there? Or will there be a greater emphasis on recognizing higher margin and margin expansion from Florida in that state for the balance of the year?

Hey, good morning, Andrew, and thanks for the question.

We're excited by seeing the progress in Florida. And I'd say to answer your question, I think Florida for us is obviously a key state and a key element of our growth. And we see that growth, I would say, through different aspects. One is continuing the increase of number of stores where we feel that we haven't mapped the state completely yet. neither in the medical market that is today or preparing for adult use. But the second point to your question is that we feel that we have potential for organic growth in our existing stores. So, so far, we've done great progress from the quality of the products, great products, progress from a menu and the diversity of products that we propose. but we think that our pricing is not reflecting yet completely that quality and that diversity of products. So we see a growth, I would say, both by increasing the number of stores still working on that with another 10 this year and more in 24, but also by continuing to increase on same-store growth.

Great. And maybe my follow-up question will be exactly on that point. In terms of the growth that you expect in that space, if you were to compare what would be the bigger driver, the number of new stores or the same store sales growth from existing store base, what do you think is the greater driver there for the balance of the year? Or do you think it's roughly equally weighted?

Yeah, I think it's actually both in the sense that opening new stores takes a bit of time to ramp up, considering that it's a medical market. So it's a bit different than an adult market in terms of how fast you can grow these new stores. So it's a ramp up that we see throughout the year. So I'd say that it's at least as much from existing stores growth as it is from new stores.

So call it a 50-50.

The next question comes from Matt Bottomley with Canaccord Genuity. Please go ahead.

Good morning, everyone. Thanks for all the color on the granularity on the state-by-state comments. Just wanted to now pivot to New Jersey. I'm just wondering if you could provide any commentary. Obviously, it's been a tailwind for you guys, but if you look at you know, branded market share, even though it's sort of on a sample basis that, you know, all the analysts kind of look at, it still seems like you're at a low to mid, you know, market share percentage, your single digit rather. Just wondering if any of that is intentional, just given your refocused, you know, nature on the balance sheet and some of the initiatives you've recently announced versus, you know, maybe starting a bit later in that market, just trying to get a better feel for what the cadence is given that You know, there is a bit of ground to cover between you guys and some of the market leaders there. And just given, you know, the attractiveness from what I understand of the assets that you have there, I'm just curious what your anticipation is for any potential catch up in the later part of this year.

Yeah, thanks, Matt. Really appreciate the question. And yes, agree with you that while we see a slight growth in Q1 versus Q4 and continuing improvement in New Jersey. I don't think that we're yet where we should be in terms of market share and volume in New Jersey. There's clear actions that are happening as we speak. I mean, the one that will happen the closest from now is actually the expansion of Eatontown. So we have a store in Eatontown where we're very limited from a space standpoint and number of customers that we can accommodate at the same time. And by the end of the month, we'll expand. So today, it's a store that can accommodate only 22 people. And by the end of May, it will accommodate over 160 people, for example. So that's going to be a clear unlock. At the same time, the two other stores named Woodbridge and Union. Woodbridge, we bring stronger talent. We have a store director just started and improvements from a retail performance standpoint. And Union is probably the store where we still are pushing on marketing efforts to get more awareness about our store in the market. So clear that New Jersey is improving quarter over quarter, but I think that we should expect an acceleration of that improvement in the second half of the year, considering the actions that are happening as we speak.

Got it. Appreciate that. And then my other question is just on the cash flow profile, you know, solid for Q1. But as you noted, there'll be some volatility probably on cash, timing of cash tax payments. So that's anticipated for all MSOs in Q2. There'll largely be a double payment. I'm just curious for you guys, have you, you know, thought about or are planning to, you know, take advantage of what some MSOs are doing with that sort of 18-month lag on paying the federal part of taxes? Is that something that's being baked into your forecast for finishing the year overall with the free cash flow profile and anything related to that sort of strategic way of looking at it, given that everyone's kind of looking for creative ways to access additional capital?

Yeah, thanks, Matt. So in terms of taxes, we're fully paid in for 2021.

We expect to pay 2022 over the course of this year. I don't want to comment too much on our overall tax strategy, but I'll say that we typically pay on a one-year lag. We've been fully paid in for 21 and expect to end this year with our tax liability primarily relating to operations from this year, 23.

And just to add on that big picture, what we're seeing is that we don't need to change the strategy that we have on the frequency of payment and tax, considering where we plan on lending from a cash standpoint at the end of 23. So at this point, it's not a strategy that we need to think about changing, considering the cash position that we're in.

The next question comes from Matt McGinley with Needham.

Please go ahead.

Thank you. You stated that better inventory management will be a working capital unlock this year. what would you like to get to in terms of inventory days or dollars at steady state? And do you think that you'll be able to get to that, whatever that target is by the end of this year, or is that something that could bleed over into next?

Yeah, thanks. Thanks for the question. I think that we will continue to see improvements from an inventory standpoint. I mean, where, where you look at best in class and industry where versus where we are, I think we still have quite significant progress to make from an inventory standpoint. So, I'm not going to give a dollar amount here, but when you look at the inventory that we have at the end of this quarter, I would say that we still expect significant decrease in the inventory and even more if we're looking at what the inventory looks like as a percentage of sales as we increase sales in the second half of the year. So expect improvement from a dollar standpoint and even more improvement from inventory as a percentage of sales.

And for the SG&A, Brad, I think Brad noted an expectation that you'll see SG&A improvements through year end. Do you expect to see improvement in the rate of, you know, off of the rate of top line growth here? Or do you think you can shrink G&A dollars while still growing the top line?

Yeah, we look at everything on a relative or proportionate basis. So what we said before is that we're expecting SG&A to, you know, in 23, exit the year around 30% as a percentage of sales. We're at 33% today. So, you know, how much of that will come in absolute dollars versus leverage on the sales front will, you know, depend on how operations scale through the year, but we're going to get there one way or another to that 30% rate.

The next question comes from Scott Fortune with Rock MKM.

Please go ahead.

Yeah, good morning, and thanks for the questions. And you mentioned your remarks on the retail side, kind of continuing to move up your own brand, selling into your own store, retail store. Obviously, it's different in Florida, but looking at the other states, do you still have room, or are you starting to kind of peek out kind of your own brands in your own stores and what's going to drive that retail four-wheel margins from that standpoint?

Yeah, I'll take the first part of, and thanks, Scott. I'll take the first part of the question on the internalization and our own brand in our stores. And Brad may compliment the question on the last part of your question. So if you look at the internalization outside of Florida, so including Florida, we're at 69% internalization now versus 66% in Q4. So we keep improving on the overall internalization. If I remove Florida from that, we were at 47% in Q4 and we're now at 51%. So that means that the improvement is not linked to only the increase of Florida in the mix. It's very much the improvement that's happening in every state in terms of internalization. Now to your question, I'd say we're only at 51%. Here again, we think that we're not at the level of best in class, and we have another probably close to 10% potential of internalization. The other thing that's happening as we speak, but it will take some time, to pay off is really the rationalization of our brand portfolio. So moving down from 12 brands today to four brands in the future, which will give us a chance to actually invest further in those four brands versus the 12. And probably both in our stores and from the wholesale standpoint, support the growth of the internalization in our stores and of the wholesale at the same time. So good improvements. But I think we still have room to grow from an internalization standpoint.

And in terms of the margin impact, you know, internalization is one of the key drivers of margin expansion, I'd say, along with optimization of pricing and cost and continuous improvement in yields and productivity. So, so far, those good guys on margins have been able to offset the pressure we've been facing in terms of cost inflation or price compression. and also the pressure we're facing on inventory depletion efforts. So far in Q1, we were successful in offsetting that, maintaining mid-50% margins. We expect to continue to offset that through the course of the year.

I appreciate that, Tyler. And then a follow-up, you mentioned, obviously, you spent CapEx in the first quarter kind of hitting your target. I think it was around $30 million for the year. Just kind of step us through And the additional capex, I know you want to add another 10 stores in Florida, but where will the additional capex come for the rest of your focus on retail versus production capacity? Just kind of lay out the pipeline you have for capex.

Yeah, thanks for the question. As you said, the capex spending Q1 is very much in line with the guidance that we've given for 23, meaning that we've spent 7 million capex, 7.2 million capex in Q1, and we've guided to about 30 million capex for the whole year 23. We think that that's the right level of capex for 23, and that allows us to make the investment that we need. in Florida, mainly on the new stores that we have to open in Florida and some works that we need to do in our cultivation facility, and also stop preparing for adult use and I would say the capacity needed for 25 and beyond. So feeling good about the path that we're having and being very much aligned with the guidance of $30 million this year of capex, mainly spent in stores in Florida plus ohio and and a few other places like new jersey extension as i was mentioning before and then preparing for the future for florida at the same time the next question comes from russell stanley with beacon securities please go ahead

Good morning, and thank you for taking my question. Just wanted to follow up on Florida and your retail expansion there, given your optimism expressed around adult use. Wondering if you plan or considering relocations of existing stores. We know you're obviously starting off in a rebrand, and we're wondering if a number of the legacy stores might be moving or relocating, given the evolution of the market as you see it.

Well, yeah, thanks for the question.

I mean, you know, in retail, what you say is location is king, right? It's number one priority is location, number two location, number three location. So to your point, we are looking at are we in the right locations in the stores that we have today? That said, I would tell you that it might be the case for a handful of stores in the future. But the majority of the capex is very much on the extension by adding stores. We feel that there's parts of the state that we're not mapping completely right today and where we feel that we have opportunity for growth. So I don't want to give exact numbers, but I would say from a capex standpoint, it would be a 90% on new stores, 10% on relocation of stores.

Great. And for my follow-up, just sticking with retail and moving to Massachusetts, I guess, can you elaborate, I guess, on what, on the efforts made to drive awareness and traffic to those, to those adult use stores and what level of success you're seeing, where you think you are with respect to your expectations? Thank you.

Yeah. So, Still absolutely not where we should be from a retail standpoint in our four locations in Massachusetts. Hence the significant efforts that we're putting right now from an increase of transactions through customer awareness and driving traffic to those stores. I think the other thing that is key for us in Massachusetts as we look at the state is, yes, we have four stores and we need to increase the volume and the business that we realize in these stores. But at the same time, there's over 300 dispensaries in the state. So a key focus at the same time for us in Massachusetts is very much on increasing our wholesale presence and our penetration in the 300 dispensaries. So I would say Massachusetts is a story that has really two tails. One is very much on increasing that customer acquisition and driving traffic to our stores. Not at all yet there. So to me, it's a second half of the year good guy, and then clear focus on increasing our wholesale penetration in the 300-plus dispensary in the state.

The next question comes from Sonny Randhawa with Seaport.

Please go ahead.

Nice improvement on adjusted EBITDA in Nevada and Pennsylvania. Kind of parse out how much further do you think you can go there and how far is that adjusted EBITDA figure from firm-wide? Just trying to think about it from the perspective of how much is low-hanging fruit because I guess adjusted EBITDA, as the percentages go up, it gets harder and harder to make that adjustment.

Yeah, thanks. Hey, I'm so glad you're asking the question because I'm really, really proud of what the teams have been achieving in those states. So Nevada and Pennsylvania are states that overall as an industry, we hear they're steady and either flat or low single digit decrease from a revenue standpoint. We're doing okay from a revenue standpoint, but that focus that the team has had on improving margin and improving adjusted EBITDA in those states have been really impressive in Q1. And they're continuing as we speak. So I think it's been an effort that paid off by having clear owners of the state that have that 360 view and own at the same time retail wholesale purchasing and can really play with the actors on making sure that we get We get the best pricing. We get the best mix, I would say, of internal brands and other products to offer to our customers. And again, really proud of seeing Nevada adjusted EBITDA growing by 29%. Pennsylvania adjusted EBITDA growing by almost 20%. And I think that we will continue to see those improvements in the future thanks to the team that we have in place and the way that we're working with that 360 view. And the other thing I would add to that, sorry, is across the board, we're making efforts on making sure that we're looking at promotions and discounts the right way, avoiding stacking where it's not needed and really getting to a better place from that pricing and level of promotions that we're doing. And that's part of the thing that I've paid off clearly in Nevada and Pennsylvania.

I guess for my follow-up on the wholesale side of the business, nice improvement there as well. Just wanted to see if you could call out some of the markets that led to that strength, and where do you foresee wholesale percentage increasing or going for the rest of the year?

Yeah, thanks for the question. From a wholesale standpoint, you really have two different things that are happening at the same time. There's one which is the overall improvement of our wholesale through a mix of local management and changing the leadership from a national standpoint. So overall, across the board, you see improvements through that. And then, to be honest, in the first quarter, you also have the efforts that we're making from an inventory standpoint. getting to a good place of inventory. So that is especially true in Massachusetts, where Massachusetts, we reduced inventory by taking actions in our stores, but taking actions as well from the wholesale standpoint. So I'd say we achieved a 12% mix in Q1 from a wholesale standpoint, partially because of the improvements of wholesale, partially because of the efforts that happened specifically in Massachusetts, and you should and we expect to see that mix growing over the coming quarters. It's not going to be a steady growth. I think that as we get better from an inventory standpoint in some states, some of it will not happen, I would say, as fast as the growth will come very much from that healthy growth of wholesale, plus the coming online of Ohio, which we just started our wholesale business there.

This concludes the question and answer session.

I would like to turn the conference back over to David Goubert for any closing remarks. Please go ahead.

Thank you very much, and thanks to everyone for being with us this morning. As I shared in the remarks, I'm really excited and proud of the work that has been done by the team so far, and we know that we have so much more ahead of us to continue to grow and grow in a very healthy way. I'm, again, very excited where we are, and the one thing that I would like to highlight even further is the place where we are from a team standpoint and an organization standpoint. It's pretty rare in a career, and I've been managing companies for over 20 years, pretty rare in a career to be in a place where the leadership team is 100% the right leadership team to achieve the goals that we have and having a strategy that everybody's buying in. I'm excited by that and I'm excited by having a chance to share more in the coming quarters.

Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.