Cresco Labs Inc

Good day and welcome to the Crest Crow Labs first quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing 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 touch-tone phone. To withdraw your question, please press two. Star 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 of Cresco Labs. T.J., please go ahead.

Thank you. Good morning and welcome to Cresco Labs' first quarter 2024 earnings conference call. On the call today, we have Chief Executive Officer and Co-Founder, Charles Bachtel, Chief Financial Officer, Dennis Hollis, and President Greg Butler, who will be available for Q&A. Prior to this call, we issued our first quarter earnings press release, which has been filed on CDAR and is available on our investor relations website. These preliminary results for the first quarter of 2024 are provided prior to completion of all internal and external reviews and, therefore, are subject to adjustment until the filing of the company's quarterly financial statements. We plan to file our corresponding financial statements in MD&A for the quarter ended March 31st, 2024 on CDAR and EDGAR later this week. Before we begin, I want to remind you that statements made on today's call may contain forward-looking information. Actual results may differ materially. The risks, uncertainties, and other factors that could influence actual results are described in our earnings press release and in the MD&A filed with the securities regulators. This call also contains non-GAAP measures also outlined in our earnings press release and in the MD&A filed with the securities regulators. Please also note that all financial information on today's call is presented in U.S. dollars, and all interim financial information is unaudited.

With that, I'll turn the call over to Charlie. Good morning everyone, and thank you for joining us on the call today. It is a historic time for the industry with the anticipated reclassification of cannabis to a Schedule 3 substance. We see this as the first federal reform domino to fall that will likely have substantial impacts on cannabis reform in the future. It'll open the door to more research, impact legislative opinion, and is a significant step toward eliminating the crushing tax penalties imposed on the cannabis industry. We're excited about what the potential shift could mean for the cannabis stakeholders and Cresco shareholders, especially in combination with all of the hard work by the team to improve profitability over the last year. Our Q1 results demonstrate our business's growing momentum and continued focus on our core and profitability. Year over year, we generated a 580 basis point improvement in gross profit margin, proving that our efforts to restructure and prioritize investments across our core markets continue to drive outsized returns. Our team removed approximately 65 million dollars in annualized adjusted SG&A compared to the prior year, while growing more cannabis, selling more units, handling more retail transactions, launching fresh innovations, and building new technologies. We delivered 53 million dollars in adjusted EBITDA, up 24 million dollars year-over-year, and net income before taxes of 16 million. And finally, we generated 36 million dollars in operating cash flow, 33 million more than a year ago, further strengthening our balance sheet position and giving us greater firepower to redeploy towards strategic growth opportunities. Cresco Labs is stronger, leaner, and more productive than ever, and we're using this energy to fuel our business and take full advantage of the major state and federal catalysts ahead of us. Now I'm going to share more on how we're executing to create the strongest and most valuable Cresco Labs for the years to come. Number one, we're ensuring we have the most strategic footprint. In 2024, we're throwing our full weight behind the imminent and potential adult use catalysts coming within our existing footprint. This means strategically building on our leading positions in Ohio, Pennsylvania, and Florida. In our newest term catalyst, Ohio, our teams are ready for the adult use rollout, which as of Monday's exciting news, is set to formally kick off in June. We have been making strategic improvements to our dispensaries to ensure we can handle the increased traffic with the same level of service that has made our dispensaries some of the most productive in the state. At the same time, we continue to make cost-effective upgrades to our production facility to maximize yields and product throughput. Over the past year in Florida, we've made strategic investments towards efficiency gains at our Indian Town facility, upgrades that are paying dividends and having a ripple effect across the entire value chain. In Q1, nearly every KPI is up, including yields, potency, customer growth, and ticket growth. With an over 100% increase in quarterly revenue and nearly doubling our market share versus a year ago, we're winning in all areas through best-in-class vertical integration. Our retail operating model was on full display for 420 with our Florida stores managing record-breaking traffic and patient throughput, designed to scale up as we shift into adult use. In Pennsylvania, we're well positioned to maximize the potential adult use opportunity with the number one branded market share and leading retail coverage. In Q1, we launched our high-dose trochees format, further establishing our leading portfolio of brands. We're also making strategic investments to expand both our facility network and store footprint to support the anticipated market conversion. Ohio, Florida, and Pennsylvania represent the three largest state growth catalysts in the industry. We're taking meaningful steps and making smart investments to ensure we capture outsized share and generate significant operating leverage and free cash flow in these markets while also closely evaluating recently launched adult use markets like New Jersey and Maryland. Thanks to our focus on operating cash flow, we can strategically take on new adult use markets at the right time and invest in accretive opportunities and incremental growth catalysts in the coming years. Number two, we remain the leader in branded wholesale products. Our House of Brands continues to deliver on its promise of high quality and high value products for every consumer occasion. We continue to hold the number one overall share position in Illinois, Pennsylvania, and Massachusetts, and per BDSA, we have top portfolio positions nationally in branded flour, concentrates, vapes, and edibles. We're constantly evaluating our portfolio to ensure we're delivering best-in-class brand performance. One example is our revamped approach to the pre-roll category. In Illinois, we've already driven an 800 basis point improvement in our pre-roll market share year over year. We're building capabilities to address any gaps in our offerings and using automation and leading capabilities to deliver high-quality, profitable products. This mindset extends beyond our product portfolio, with the entire Cresco team sharing in the relentless pursuit of improvement across every step of the value chain. Our brand strength also facilitates winning relationships with non-MSO or independent dispensaries, which will continue leaning into this year. Across the three markets where we hold number one share positions, we saw an average year-over-year revenue growth of approximately 25% from independents in Q1. This is a clear sign that when dispensaries are prioritizing product velocity and gross profit impact, Cresco Labs products deliver unparalleled value. And number three, we're building a highly productive retail portfolio in the most strategic states. We reached some exciting retail milestones in Q1. Notably, we've increased our retail fair share year-over-year across every market. In Illinois and Ohio, our stores have reached two times the state's average store's monthly sales. In Florida, according to state-provided data, we've doubled our market share position year-over-year. These are impressive speeds across highly competitive and MSO concentrated markets, that showcase our ability to leverage verticality, optimize our assortment to reflect consumer trends, and ultimately drive more revenue into higher profitable goods. In Q1, we increased trip frequency by 3% and grams sold per ticket by 11% compared to the prior year. For our most valuable customers, we increased trip frequency by over 10% during that same period. This growth is possible because of the many things that we do differently in retail that make Sunnyside uniquely Sunnyside. Our investment in tech capabilities is allowing our team to accomplish incredible things. We had a remarkable 420 this year, where our teams managed 19,000 online orders, a single-day record of 25 orders per minute. On a day when consumers buy a lot of cannabis, our technology enabled them to buy even more. Our e-commerce platform, sunnyside.shop, drives consumer behavior, leading them to build baskets that were $20 higher on average when compared to both in-store shopping and other online ordering tools. This considerable bump isn't unique to 420 our capabilities and data driven understanding of our consumers creates a clear differentiated advantage. Our retail footprint is built on a base of technologies and repeatable operating procedures that we've continuously advanced over the last 3 years. It consistently outperforms fair share with a highly efficient cost structure. It gets better every quarter. In closing, last year was about building a rock-solid foundation, and this year is about leveraging that strength to take full advantage of the many transformational catalysts and growth on the horizon. I'm so proud of how the CRESCO team has taken all of the learnings from the Year of the Core, internalized them as part of our DNA, and continues to work towards generating significant free cash flow and profitability. With that, I'll turn it over to Dennis to provide more details on our Q1 performance.