Cresco Labs Inc

Good day and welcome to Cresco Labs' fourth quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then one on your touchtone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would now like to turn the call over to T.J. Cole, Senior Vice President, Corporate Development and Investor Relations for Cresco Labs. Please go ahead.

Thank you. Good morning. Welcome to Cresco Labs' fourth quarter 2023 earnings conference call. On the call today, we have Chief Executive Officer and Co-Founder Charles Bachtel, Chief Financial Officer Dennis Ullis, and our recently appointed President Greg Butler, who will be available for the Q&A. Prior to this call, we issued our fourth quarter earnings press release, which has been filed on CDAR and is available on our investor relations website. These preliminary results for the fourth quarter and full year 2023 are provided prior to completion of all internal and external reviews and therefore are subject to adjustment until the filing of the company's annual financial statements. We plan to file our corresponding financial statements and MD&A for the quarter and year ended December 31st, 2023 on CDAR and EDGAR. Certain statements made on today's call may contain forward-looking information within the meaning of applicable Canadian securities legislation, as well as within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements may include estimates, projections, goals, forecasts, or assumptions that are based on current expectations and are not representative of historical facts or information. Such forward-looking statements represent the company's beliefs regarding future events, plans, or objectives, which are inherently uncertain and are subject to a number of risks and uncertainties that may cause the company's actual results or performance to differ materially from such forward-looking statements, including economic conditions and changes in applicable regulations. Additional information regarding the material factors and assumptions forming the basis of our forward-looking statements and risk factors can be found in our earnings press release and in CRESCO Labs' filings on CDAR and with the Securities and Exchange Commission. Cresco Labs does not undertake any duty to publicly announce the result of any revisions to any of its forward-looking statements or to update or supplement any information provided on today's call. Please also note that all financial information on today's call is presented in U.S. dollars and all interim financial information is unaudited. In addition, during today's conference call, Cresco Labs will refer to certain non-GAAP financial measures such as adjusted EBITDA, adjusted gross profit, adjusted gross margin, and adjusted SG&A, We should not have any standardized median prescribed by GAAP. Please refer to our earnings press release for the calculation of these measures and a reconciliation to the most directly comparable measures calculated and presented in accordance with GAAP. These non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should only be considered in conjunction with the GAAP financial measures presented in our financial statements.

With that, I'll turn the call over to Charlie. Good morning, everyone, and thank you for joining us on the call today. We've been talking about our Year of the Core strategy since last March, where we're rationalizing and optimizing everything we do to make Cresco Labs the strongest company possible, winning within our core markets, core stores, core brands, and core products. This strategy was a decisive reset designed to focus the business, strengthen the balance sheet, and ensure preparedness for future growth. We started seeing the results of the strategy in Q3 with improving margins, profitability, and cashflow. I'm proud to share that our Q4 results capped off the year with not only strong bottom line growth, but also margin expansion, nearly doubling our adjusted EBITDA and achieving positive free cashflow for the year. We've set a new standard for ourselves and we're using these wins to fuel our business and capitalize on the many growth catalysts ahead. I can't say enough about the Cresco team. who took this focus on the core, embraced it, made it part of our DNA, and built a stronger, leaner, and more productive Cresco Labs. In Q4, our financials demonstrated accelerating momentum that'll propel us for the quarters to come. Year over year, we generated $11 million more in adjusted gross profit on less revenue, significantly improving our gross margin. Our team removed over $54 million in annualized adjusted SG&A compared to the prior year, while driving scale, increasing unit production and retail transactions, and also improving the quality of our products, customer experience, and operations. We delivered $55 million in adjusted EBITDA of $25 million year-over-year, leading to an adjusted EBITDA margin of 29%. And finally, we generated three times more operating cash flow for the full year. 2023's improved cash flow is a direct result of our year-of-the-course strategy, supported by best-in-class technology, processes, and this engaged team that enabled us to do more with less. Now I'm going to share more on how we're executing to create the strongest and most valuable Cresco Labs for the quarters and years to come. Number one, we're ensuring we have the most strategic footprint. In 2023, we took a hard look at our footprint to ensure we're making the most of each market's long-term cash flow potential. This meant rationalizing areas of margin dilution in our footprint and doubling down in our core markets. While this led to some short-term top line decline, it drove significant bottom line improvement and allows us to redeploy resources and capital to our proven markets, driving high returns on investment, increased competitiveness, and maximize adult use unlocks anticipated in these states. In 2023, we added 16 stores across Florida and Pennsylvania. competitive markets where we've been able to increase market share, widen product distribution, and improve operating leverage. Turning to 2024, all eyes are on Ohio's adult use program, where we built a rock solid foundation as one of the leading operators in the state. With our five dispensaries driving over two times their fair share of revenue and a 70,000 square foot cultivation and processing facility, we've completed the bulk of our capital investment. We continue to make intelligent upgrades to our Ohio infrastructure, leaning on the successful playbooks from our other adult use conversions. We're also closely watching Pennsylvania and Florida's adult use timelines, making investments ahead of those anticipated conversions, which VDSA expects will represent a combined $4 billion opportunity. We're very well positioned to capitalize on the three largest near-term state growth catalysts in the industry. Number two, we remain the leader in branded wholesale products. The Cresco team is constantly honing our brand building capabilities, evidenced by the sustained success of our House of Brands, where we're differentiating our products from the competition and giving the consumers what they really want. Per BDSA, we're an industry leader across every product category with top four portfolio positions in branded flour, concentrates, vapes, and edibles. And once again, in the markets of Illinois, Pennsylvania, and Massachusetts, we continue to hold the number one overall share position. We continue to deliver best in class brand performance because we know what levers to pull. Consumers want high quality and potency, but they're also seeking unique genetics and terpene profiles to fit specific uses. In 2023, we launched hundreds of new strains across our core markets. By 2025, through our in-house breeding program, we plan for half of the products on our wholesale menus to be comprised of exclusive Cresco genetics, further distinguishing our offerings. We're also putting in the work to continuously enhance our cultivation and automation capabilities, which in the second half of the year resulted in 2.2 million more grams of flour produced on 9% less canopy, a 10% increase in grams per square foot. Even more impressive, we did this without sacrificing quality as we also saw our average potency increase over the same time period. These capabilities are on full display when you look at our performance in Florida. Since last year, we've more than doubled our flour sales. In the second half of 2023, we increased yields by more than 16% and increased total units packed out by an astonishing 67%. These efficiencies were all achieved while keeping headcount and COGS flat, leading to improved gross margin and EBITDA margin expansion. We continue to push for higher output without sacrificing quality as we work to meet the ever-growing demand and take full advantage of our retail footprint in the state. Our house of brands achieved its leadership status through superior product quality relentless approach to continuously improving production capabilities, and sophisticated market planning, which will allow us to continue winning with independence as new stores open in our existing footprint and as we expand into new markets. And number three, we built a highly productive retail portfolio in the most strategic states. I'm proud to say that we continue to grow retail revenue and fair share, all while reducing costs and generating greater profit. Year over year, we grew retail sales 3% to $119 million in Q4 and saw retail fair share increase in every market. We keep expanding our lead by getting existing customers in our doors more frequently and using data-driven price, promotion, and assortment strategies to drive significantly higher basket sizes. During the same period, we decreased total retail SG&A per quarter by almost 11%, while seeing an 18% increase in the number of transactions across our network. that is an incredible per store efficiency improvement thanks in part to in-house technology like our new inventory management processes as well as a shift to more data-driven staffing models lastly our proprietary e-commerce and loyalty platforms sunnyside.shop have brought us closer to our customers than ever before with over 275 000 sunnyside reward members and nearly 80 percent of all transactions being placed online our online adoption allows us to target customers tailor experiences, and customize offerings that build baskets while delighting shoppers. A retail footprint consistently outperforms fair share with a highly efficient cost structure that is getting better every quarter. It'll continue to be a core growth driver as we open new doors and seize on the adult use conversion opportunities in front of us. In closing, 2023 was a critical year for the entire industry, and we used the time wisely to build up our core through disciplined capital allocation, exceptional cultivation and manufacturing capabilities, and a highly efficient retail infrastructure. I'm proud to see our strategy bear fruit and establish a new baseline for Cresco Labs. You can expect to see more of the same from us in 2024, getting more from our core, fortifying our strengths, investing in key capabilities and growth catalysts, and prioritizing bottom line growth, profitability, and cash flow. With that, I'll turn it over to Dennis to provide more details on our Q4 performance.

Thank you, Charlie, and good morning, everyone. In 2023, we set out to improve cash flow and profitability and Q4 with a culmination of efficient capital allocation strategies and targeted cost savings initiatives. I'm pleased to share that thanks to these efforts, we improved margins across every area of our business, nearly doubled adjusted EBITDA, and significantly improved operating cash flow. In the quarter, we generated $188 million in revenue. This impressive performance is a testament to the entire Cresco team who leaned into our production, commercial, and retail strengths to offset over 20% year-over-year price compression in our markets. With every product being sold at a lower price this year, it has been imperative for us to develop efficiency throughout our business. We've done an exemplary job lowering our cost of goods through increases in yield and new automation that has driven greater output on the same asset base. This has led to an $11 million increase in adjusted gross profit, bringing our gross margin to 53%, an 850 basis point increase from Q4 of 2022. The efficiency gains have extended well beyond the cost of goods sold, increasing profitability both at corporate and at retail. Year-over-year adjusted SG&A declined by $13.5 million per quarter, which equates to $54 million on an annualized basis. Our Q4 total adjusted SG&A was reduced to $54.5 million, or 29% of revenue. Our Q4 adjusted EBITDA was $55 million, or 29% of revenue, up 85% year over year. This was a direct result of our better gross margin performance, record efficiency improvements across retail, cultivation, and manufacturing, and a company-wide focus on the year of the core. For the full year, we generated $59 million in operating cash flow and $6 million of positive free cash flow. We spent $4.8 million in CapEx during Q4, bringing the total year to date to $55 million. The investments in 2023 were primarily in new stores in Florida and Pennsylvania and incremental improvements to cultivation and production facilities in Massachusetts, Ohio, Florida, and Illinois. Our CapEx spend this year was keenly focused on improving profitability and operating leverage in our core and comes with a high return on invested capital and a quick payback. In 2024, our CapEx plan is directed at maximizing the upcoming adult use catalyst in Ohio, Pennsylvania, and Florida. As Charlie mentioned, we are built out in Ohio and a plan for a small investment to increase yields and throughput in our other facilities and stores. In Pennsylvania, we are looking to make similar investments and we continue to prepare our second cultivation facility in the state so it's ready to turn on for adult use. Lastly, In Florida, we plan to make significant investments ahead of adult use with a focus on expanding our cultivation facility, which will unlock the full potential of our retail footprint, both in today's medical environment as well as in the future adult use scenario. Looking ahead, we expect Q1 total revenue to be down in the low single digits, driven by pricing pressure and increased competition in the direct vicinity of our retail locations. This will be partially offset by growth in Florida and Pennsylvania. We expect Q2 and Q3 to be relatively flat compared to Q1 with the company returning to growth in the fourth quarter, driven by the anticipated conversion to adult use in Ohio. We expect the adult use conversions in Ohio, Florida, and Pennsylvania to provide meaningful year-over-year growth in both 2025 and 2026. We are targeting to keep gross margins around approximately 50% in the face of price compression by continuing to drive efficiencies and lower cost of goods. Absolute SG&A expense should be roughly flat sequentially throughout 2024. Cash flow should see significant improvement year over year as we get the full benefit from all the improvements we've made to date. With our very focused CapEx plan in 2024 built around setting ourselves up for adult use conversions and the significant improvements in operating cash flow, we expect 2024 to be a record year for operating and free cash flow. In addition, while we have continued to pay our federal and state taxes on a timely basis, we are actively assessing our tax position and evaluating options for our current and past tax filings. This has the potential to have a material impact on our already strong cash performance we expect in 2024. We feel great about where we are and what we're able to accomplish in 2023 and we're setting ourselves up to continue on this path and achieve record cash flow again this year. There's a lot of opportunity ahead, and everything we're doing now is focused on improving efficiency and cash flow so that we're positioned to reinvest in our business with higher paybacks and better returns. And with that, I'll pass it back to Charlie.

There's a saying, most people overestimate what they can achieve in a year and underestimate what they can achieve in 10 years. Well, if this is what Cresco team can achieve in just one year, I can't wait to see the next 10. My team and I are continuing to spend a lot of time in D.C., meeting with members of Congress. And we're encouraged by the conversations around rescheduling and safer banking. But we're not waiting on federal reform. We're capitalizing on the incremental changes happening today. Adult use conversions are coming to some of our highest revenue and most profitable markets. And we're uniquely positioned to capture outsized market growth from day one. In Pennsylvania, in addition to having one of the largest and most productive retail footprints, we are the number one producer of branded products with over a 16% market share with additional capacity ready to turn on. In Ohio, we continue to improve our leading position with strategic investments, upgrading our facilities and retail footprint, which will grow from five to eight stores in the state upon the launch of the adult use program. And in Florida, we'll continue to make CapEx investments as we expand our market share. A multi-year expansion plan is currently underway, which has already enabled us to capture 4% market share, and we will continue to increase cultivation capacity to supply medical patients and in anticipation of an adult use program. With over 70% of Americans in favor of full cannabis legalization, this is just the starting point of what will be a long list of tailwinds for this industry. And we'll be ready for it. Everything we did in 2023 was designed to prepare us to take advantage of the monumental opportunities ahead. Investing in our largest, highest margin markets, maximizing our upcoming adult use catalysts, driving operating efficiencies, capitalizing on our brand and winning with independence, expanding our retail and investing in innovation to provide the consumer with the best cannabis experience possible, and generating more free cash flow to strengthen our balance sheet. With that, I'll open the call for questions.

Thank you. As a reminder, if you would like to ask a question today, please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind and would like to be removed from the queue, please press star and then two. When preparing to ask your question, please ensure that your microphone is unmuted locally. Our first question comes from the line of Aaron Gray with Alliance Global Partners. Aaron, please go ahead.

Hi, good morning, and thank you very much for the question. First one for me, just in terms of the gross margin improvement, and that's due to that uptick there to 53% in the quarter. You spoke to some of the levers there. Want to speak a little bit more on the go forward. Dennis, you spoke to a range around 50% going forward. So just as we think about the efficiencies, automation, maybe pricing strategy, and then geographic and format mix, how do we think about all the puts and takes that went into the improvement this quarter? and then how much more of a lever you have going into 2024, and maybe just putting into a bow just some of the pricing pressure that you mentioned that you anticipate. So, how do you think about making sure all those levers will be able to offset the anticipated pricing pressure that you expect? Thanks.

Hey, good morning, Aaron. Thanks for the question. So, I think, you know, the results as we discussed, they reflect. a truly disciplined approach to operating the business, focusing on the markets that provide sort of the best economic structures as well as operational structures. And then a ton of credit goes to the team that has developed these capabilities throughout the organization that drive efficiencies both in the production side of the business, the retail side of the business, the headquarters and corporate side of the business that really result from Cresco being a stronger, leaner, meaner company coming out of 23 and entering into 24. So, as we look at 24 and continue to see sort of where we have opportunities for further improvement along with the risks associated with continued price compression, that's going to be an ongoing management. of the dynamics of this industry. And again, there's so many components that feed into it, but I can just tell you the team, the skill sets and the tools and the resources and the approaches that have been developed over the last nine, 12 months to allow us to manage that most effectively. It's just that it's a different level. So excited about our ability to manage that as we go forward in 24 and beyond.

And Aaron, this is Dennis. Let me just add on to that. You know, a lot of the actions that we took in the first half of the year that relate to COGS, we capitalized those costs. So those cost reductions are just starting to flow into the P&L in the fourth quarter and beyond. So that's why you saw part of the improvement, a step function improvement from Q2 to Q3 to Q4. We also saw a very favorable mix across our geographic locations in Florida and in Pennsylvania, for example, that are high-margin states for us. So we do expect, as I said in my notes, prepared remarks to continue to see close margins in the 50% range for the balance of the year, with the future efficiency gains offsetting some of the price compressions that we've been talking about.

Okay, great. Really appreciate that comment there. And then just in terms of the wholesale opportunity that you guys have, specifically maybe more so for Illinois and then New York. You know, how do you think about the potential for wholesale growth? You're going to have some third-party stores opening in those states. In Illinois, it seems like the total market hasn't grown as much as we might have anticipated from some of those new stroping, so a little bit more cannibalization than growing the overall pie. So how are you looking at those third-party wholesale opportunities and the ability to then maybe see some growth in that segment line for sales? Thanks.

Aaron, I'll start. So from a wholesale opportunity, and especially in those states, Illinois and New York, we see, you know, we're very bullish on the long-term potential associated with growth in these markets. But like you said, it requires third-party independent stores to open up and for them to be productive. And over the last couple years, that's been a challenge in Illinois and also in, of course, what we're seeing in New York. But what I would tell you is our capabilities are there to be able to lean into that and help develop it. And that's what we're really focused on in Illinois and New York, too. But we need to do it in a very efficient, disciplined way, especially when they're not our stores. But we're also working on strategies that will help get those stores to not only open but be as productive as we want them to be. We can help with that, too. Greg, additional color?

No, I think the add-on to that is what we're pleased with is in Illinois, we continue to hold above our fair share of our own stores. So as the market continues to be fairly concentrated by a couple of retailers, Sunnyside continues to perform incredibly well in the market, as Charlie said. As we take a longer view and we see more independent operators open those doors, get their business running, sort of attracting shoppers, we see a huge potential for our brands in those stores in the quarters to come.

Okay, great. Thanks very much for the call. I'll go and drop back into the queue. Thanks, Eric.

The next question comes from Federico Gomez with ATB Capital Markets. Please go ahead.

Hi, good morning. Thank you for taking my question. First question is just on Pennsylvania. You mentioned some additional investments you're planning there for capacity. Could you provide a little bit more color on maybe what you're seeing in that market in terms of the supply and demand dynamic, the pace of price compression happening there, whether you see improvements this year from a pricing standpoint or some of the other factors impacting your strategy there. Thank you.

Good morning. Thanks for the call. This is Charlie. So I'll start it off. Pennsylvania just continues to be a really strong market. in its current form, and we're very excited and optimistic about the potential for that adult use conversion. But in its current form, it's a strong, very productive market compared to other states. I think we've seen a bit more stabilization in that state in recent months. We continue, though, to expect further price compression, especially as we've seen historically in anticipation of adult use launches. there's the potential for increase in capacity to prepare for it from operators in the marketplace. And that's something that we would expect to see in Pennsylvania as that AU effort progresses. But again, a state where we have the leading market share, we compete really well in it and on both sides of the aisle, on the retail side and on the wholesale side. Greg, any additional color on PA?

Other than just the fact that the PA is a fairly concentrated retail market with the major MSOs controlling most of the channel. And I think what we're most excited about as we look at state is Charlie's point. We might see some price compression as supply comes on in a medical market. But the growth catalyst that is Pennsylvania as an adult use market is pretty exciting. from a financial perspective as we look out over the next couple of years. And our leading market position in Illinois puts us in a really nice place to really take advantage of that catalyst ahead of us. So maybe some price compression here in the next couple quarters as supply comes on, but a really nice growth story for the years to come.

Thank you for that. And then my second question is just on the revenue guide. You mentioned a slight decline in Q1 and maybe roughly flat in Q2 and Q3. I'm curious if you could just unpack that a little bit in terms of between wholesale and retail here. Do you anticipate any one of those performing a little bit better in terms of growth, or how should we think about your sales mix here? Thank you.

Yeah, thanks for the question. So as we look in the next year, as we talked about the first quarter, we'll see a slight single digit decline from Q4 to Q1 and then be flat Q2 and Q3, and then we'll see a bump up in Ohio and Q4. In terms of the split between retail and wholesale, I think you'll see retail continue to perform strongly across all the different markets. We're seeing a lot of good growth in Florida, in Pennsylvania. Illinois will continue to perform well, but The wholesale market will will will kind of flatten out more the course of the year.

Right. And just to add to that, as you think of next couple quarters. With Ohio being the first adult use, you know, retail for us is quite strong in the state. So we think retail is going to come out of the gates really strong in the adult use market. So it will it will accelerate and then in Pennsylvania, where we have our stores, we think those stores will continue to grow. And as, of course, Florida looks at adult use sometime down the road here, given that that is a vertical market, retail will, from a longer-term perspective, represent a higher percentage of our revenue as independent wholesale opportunities continue to expand.

Thank you very much. I'll head back to you. Thanks.

The next question comes from Luke Hammond with Canaccord. Please go ahead, Luke.

Thanks. Good morning. Dennis, you had mentioned in your prepared remarks that you were actively assessing your tax position. That is something that we've heard from other peers within the space. Can you give us a sense of, I mean, how far along are you in that process and maybe when we might expect to get more of an update from you guys on that?

Yeah, I mean, we're constantly reviewing our tax position and we have been for some time. So, you know, with the new news that has come out, we'll continue to evaluate it. I'm not going to make any predictions on when we're going to come to a conclusion on that, but we're evaluating whether that applies to us and we'll do what we think is in the best interest of our company and our shareholders. Okay.

And then when it comes to the operating cash flow for this quarter, correct me if I'm wrong, but that does include a $50 million tax payment, correct?

So in the fourth quarter, there was a $36 million tax payment. There was also a $21 million interest payment that we pay semiannual to satisfy our long-term debt.

Got it. Okay. And then on the commentary that you're looking to have half of your product menu be Cresco genetics, Cresco strains. Can you give us a sense of, one, where that level is as of today? And this might be getting too far into the details, but what are the, I guess, the order of magnitude? What's the difference in unit economics between selling a third-party strain through that platform versus selling your own strain?

This is Charlie. I wouldn't have a perfect answer for you on the percentage that's exclusive genetics currently. There are exclusive genetics in the footprint. But I would say the new genetic launches that we've done throughout the year are creating the opportunity for us to get that diversity and exclusive crosses and mixes in the years to come, in 25 in particular, and going forward. Unit economic-wise, it of course depends on the specific strains and products that are made from them as we go forward. It's more of a general diversity and uniqueness component that goes along with it. Now, definitely unique strains that are, you know, outkick the coverage and are truly unique and warrant a higher price point, you'll see a unit economic improvement. But otherwise, it really is more of a demand standpoint and what the consumer is looking for that we're really excited about and being able to offer unique products and have that make up more than half of our offerings in years ahead. So really, really excited about that program.

Got it. Thank you very much.

Our next question comes from Scott Fortune with Roth MKM. Scott, please go ahead.

Yeah, good morning. This is Nick on for Scott. Congrats on the quarter. First one for me, just on the product mix. I know it differs by state, but can you just give us a general sense of what you saw from the consumer on the quarter? Just any discernible shifts in spending behavior and maybe how that impacted your mix between your good, better, and best categories. Thank you.

Good morning. And Greg, do you want to start us off with this one?

Sure. Good morning. Not too much of a major change from Q3, Q4. The key themes that we see is value brands, the value segment continues to be strong and growing. Our high supply brand does very well in that category. We're pleased to see it continue to take a material share of that segment. So values in from a top line perspective between flour, edibles, vapes, pretty much holding consistent as you'd expect. We're pretty excited that we are starting as we committed to getting into the pre-roll segment. It's a segment that has been not a focus for us in the past, now a focus for us. And we're very pleased to see how our brands are performing in that segment of flour, and we would expect to see our business continue to perform there as the next couple quarters come in.

Great, I appreciate that, Collin. The second one for me, just on Florida, 33 stores now, and you saw a solid market share capture on the year. You mentioned adding on the cultivation side. Just curious how you view your retail footprint and just the capital allocation strategy there going forward.

Yeah, I'll take that and continue. Florida has been a great growth story for us. Q1 is going to look even stronger as we look at some of the data from OMU coming out. We're really pleased the team out in Florida has done a wonderful job of bringing on capacity and quality into the marketplace. From a store count right now, we have the right number of stores to the current footprint we have in the state, but we are actively looking at how do we expand that footprint in advance for adult use. which may lead to store expansion at that time. But for right now, our current count is driving really nice economics for us.

Great. That's it for me. I'll pass it on.

Our next question comes from Ty Cullen with 8 Capital. Please go ahead, Ty.

Hey, good morning. Thanks for the question. First one, just on the guidance here, specifically on the sales guidance for 2024, just curious if you could kind of unpack what assumptions you're making about consumer behavior throughout the year and specifically on price compression. You mentioned it was about 20% across your portfolio in 2024. What's kind of baked into the guidance or rather 2023, it was 20%, what's baked into the guidance for 2024? Yeah, I'll start.

This is Dennis. Thanks for the question, Ty. So, as we said, the guidance for 2024 is to have a little bit in Q1 and then flatten in the second and third quarter. And again, as we talked about, that'll be some of the growth in retail will be offset by some of the price compressions and some work that we see on the wholesale side. Greg, if you want to kind of build on that.

Yeah, as we build our plans, we are planning for price compression across our core markets. I will say Q1, as we get into this year, is showing not growth, but showing that that trend line may be stabilizing a bit, which is encouraging. However, as we've written our plans, we've assumed that there will be price compression, whether that's due to increased retailer competition in the markets like Illinois, whether that's adult use supply coming online early and going into a limited medical market like Ohio and Pennsylvania and Florida. There are different catalysts that might continue to push supply into the market, bringing out pricing. Where we are confident in our plan is if we are wrong in our price compression numbers, that will be a good guy for us because we've built our cost structure for the year to assume that we will see continued price compression, which means we're finding ways to take costs out of our business at a faster rate than price. And we feel good about kind of what we were able to start showing in Q3, what we showed in Q4, and where that's going to play out for the rest of the year.

Great, Collar. Thanks. And then as my follow up, we've heard some of your peers talking about the opportunity to enter into these JV partnerships with social equity licensees as a way to find additional growth and get additional exposure in markets like Illinois, where it might already be at the license cap. Is that something CRESCO is looking into in a serious way? And if so, how would you think about the size and nature of that opportunity?

We aren't in a position to share too much on any partnership deals. What I would say is we have historically had relationships with joint venture partners and some of our retail doors in the past. It's worked very well for us, so it's something that we are actively exploring, and we know that we can do really well if that's the path that we choose to go down. Great. Thank you.

We have no further questions, so I'll turn the call back to the management team for any closing comments.

Now, just again, I want to thank the broader CRESCO team here for the way that they embraced the Year of the Core in 23 and really incorporated it into our DNA going forward. We're excited about the years ahead. Thank you for joining us on the call today, and we'll talk to you in a couple months.

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