Cresco Labs Inc

Good day and welcome to Cresco Lab's third quarter 2024 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 the number two. Please note this event is being recorded. I would now like to turn the call over to TJ Cole, Senior Vice President, Corporate Development and Investor Relations for Cresco Labs. Please go ahead.

Thank you. Good morning and welcome to Cresco Labs' third quarter 2024 earnings conference call. On the call today, we have Chief Executive Officer and Co-Founder Charles Bochtel, Chief Financial Officer Dennis Olis, and President Greg Butler, who will be available for the Q&A. Prior to this call, we issued our third quarter earnings press release, which has been filed on CDAR and is available on our investor relations website. These preliminary results for the third quarter 2024 are provided prior to completion of all internal and external reviews, and therefore are subject to adjustments to the filing of the company's quarterly financial statements. We plan to file our corresponding financial statements and MD&A for the quarter ended September 30th, 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. I'm happy to be here to discuss another successful quarter for Cresco Labs, but first want to touch on this week's election. While we're disappointed that the Florida initiative didn't reach the 60% supermajority threshold it needed to pass, we still saw substantial bipartisan majority support at 56% for cannabis legalization in a very influential state. For the first time ever, we entered a presidential election with both party candidates expressly pledging to support cannabis reform. Throughout his campaign, President-elect Trump confirmed his support for common sense cannabis laws, support for safe banking and for rescheduling, the fact that no one should be arrested for personal cannabis use, and a state's rights approach to cannabis legalization. We're committed to working with the new administration to further the development of a responsible, respectable, and robust cannabis industry that will be one of the largest consumer products categories in the country. Thanks to our sustained operational excellence, Cresco Labs is well positioned for the future. Our execution has bolstered our bottom line and underlines the success of our relentless pursuit of profitability and cash flow while we position ourselves to strategically invest in new markets and other growth opportunities. In the quarter, we generated $180 million in revenue and delivered a strong 53% adjusted gross profit margin and 29% adjusted EBITDA margin. We've increased adjusted gross margin by 250 basis points and adjusted EBITDA margin by 275 basis points year over year. We delivered $51 million in adjusted EBITDA, a 5% improvement year over year, and we've generated our best operating cash flow yet, hitting $49 million in the quarter and $103 million year to date, which is $41 million more than the first nine months last year, despite slightly lower revenue. We're holding our leading branded market share position, out-competing in retail, and generating significant free cash flow, our North Star. This allows us to enter new markets and growth verticals, reinvest in fortifying our core markets, all while improving our balance sheet and paying down debt. Now I'm going to share more on the three pillars we're executing against to create the strongest and most valuable Cresco Labs for the years to come. Number one, we're ensuring that we have the most strategic footprint. We've been reinvesting in our core to take meaningful market share, generate economies of scale, improve profitability, and build defensible positions. In Ohio, we demonstrated our successful adult use conversion playbook. We achieved the top three branded market share position in Q3. of 220 basis points year over year. This is thanks to improved efficiencies, yields, potency, and a proven house of brands that delivers in an adult use environment. Ohio is the fourth state that's expected to become a billion dollar market where we've achieved scale and hold a top three market share position. In Florida, we've doubled our market share on the same store base by refining our approach to cultivation and capitalizing on our productive retail platform. Under the current medical program Florida has become another cash flow engine for presco labs as we continue to scale up in the state. Again we're disappointed that amendment three didn't pass despite majority support from voters, but we knew this was a possibility. we've taken a thoughtful and incremental approach to expanding our capacity focused only on what we need to meet the growing demand for our products under either outcome. In Pennsylvania we're feeling optimistic about the governor's support for bipartisan adult use legislation in the first half of next year. We're strategically spending to round out our retail footprint in the state while we prepare for this next phase of growth. The past year has been all about making smart investments in our core markets, where our proven retail and wholesale capabilities can add value quickly. We're confident in our core stability, which has enabled us to identify and forge paths to new markets and unlock additional revenue and profitability. We look forward to sharing more on the latest growth initiatives and expansion plans on future calls. Number two, we remain the leader in branded wholesale products. Consumers know that quality is at the heart of our branded product portfolio, which again, are the number one overall share positions in Illinois, Pennsylvania, and Massachusetts, and is the driver behind our climb to number three in Ohio. For BDSA, we also have a top portfolio position nationally in branded flour, concentrates, vapes, and edibles. We're holding this lead because our quality at scale focus makes us more efficient with every quarter. For example, this quarter we ship more branded products year over year while reducing our cost of goods sold by 11%. This proficiency is an essential competitive advantage, especially as price compression remains a challenge and unregulated and dangerous synthetic hemp products compete for consumers' attention. Our branded portfolio strength is a testament to our operational excellence as we continue finding new ways to improve our cost structure without sacrificing the quality of our products. And number three, we're building a highly productive retail platform in the most strategic states. In Q3, we improved our retail fair share, which was up to 1.4 times on average across our markets, the highest in Cresco Labs history. We're proud to have increased our competitive lead in Illinois, where we're more than twice as productive as the average store. One of the best demonstrations of the Sunnyside operating model can be found by comparing an acquired store's performance before and after converting to Sunnyside. In Pennsylvania, the two dispensaries that we acquired in Q2 saw a 76% increase in sales year over year after adopting the Sunnyside platform, which includes a complete overhaul of the assortment strategy, e-commerce, in-store workflows, pricing and promotion architectures, branding, loyalty, and marketing. We continue achieving above retail productivity because we've embedded our strengths in every part of the Sunnyside standard. our tried and tested operating procedures and proprietary technology will ensure that we continue to perform in highly competitive markets. In closing, we exited Q3 steadfast in our commitment to profitability and cash flow. We're continuously refining our core capabilities and shifting our approach alongside market conditions. We are ready to take on the strategic opportunities that are going to come our way. With that, I'll turn it over to Dennis for his last call with Cresco Labs to provide more details on our Q3 performance.