Cresco Labs Inc

Good day and welcome to QuestcoLab's second quarter 2025 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 the star key followed by 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 QuestcoLabs. Please go ahead.

Thank you. Good morning and welcome to QuestcoLab's second quarter 2025 earnings conference call. On the call today, we have Chief Executive Officer and Co-Founder Charles Bachtell, Chief Financial Officer Sharon Schuller, and President Greg Butler, who will be available for the Q&A. Prior to this call, we issued our second quarter earnings press release, which has been filed in CDAR and is available on our Investor Relations website. These preliminary results for the second quarter are provided prior to completion of all internal and external reviews and therefore are subject to adjustments over filing of our company's quarterly financial statements. We plan to file our corresponding financial statements and NDNA for the quarter into June 30th, 2025 on CDAR and EDIR later today. Before we begin, I want to remind you that statements made in today's call may contain forward-looking information, actual results made different material. The risks, uncertainties, and other factors that could influence actual results are described in our earnings press release and in the most recent annual information form in NDNA filed with the securities regulators. This call also contains non-GAP measures also outlined in our earnings press release and in the NDNA filed with the securities regulators. Please also note that all financial information on today's call is presented in U.S. dollars and all internal financial information is unaudited. With that, I'll turn the call over to Charlie.

Good morning, everybody, and thank you for joining us on our Q2 earnings call. We're pleased to be here and share the strategic steps we're taking at position Cresco Labs for this next phase of the cannabis industry where consolidation is inevitable and the winning operators have the balance sheet cash flow and capabilities to capitalize on the moment. Q2 is the steady and productive quarter for Cresco. Operationally, we maintained our momentum and defended our retail and wholesale market shares in what remains an incredibly competitive environment. Strategically, we made critical decisions to reinforce our balance sheet, free up capital, and home in on new paths to growth. In Q2, we delivered $164 million in revenue in line with guidance and consistent with Q1 levels, reflecting our ability to counteract price compression through increased unit volumes in both retail and wholesale segments. We generated $83 million in adjusted gross profit and $41 million in adjusted EBITDA as we continue to stack efficiency gains. Our second quarter cash flow from operations was $9 million. The cannabis sector is approaching an inflection point. The operating and regulatory environments are pushing many operators to downsize significantly, particularly those lacking scale or carrying excessive debt. This means we're seeing a growing number of distressed assets, receiverships, and consolidation opportunities across the industry. We've been talking about this likely outcome for several quarters and the trend will only accelerate from here. We see this as an incredible opportunity for Cresco. We remain committed to profitability and cash flow, but Q2 and Q3 also mark a step change in preparing Cresco Labs to be the partner of choice for industry consolidation. This shift is proving even more important as competition in our core footprint increases and we set our sights on new expansion markets. Now I'll walk through how we're thinking about this next phase. First and foremost, our number one priority continues to be maintaining a solid balance sheet with a strong cash position. To that end, I'm thrilled to announce we've signed a letter of commitment to refinance our debt and we'll be closing on around August 13th. We've opted to refinance $325 million of our debt while paying down the remaining $35 million. This pushes our maturity date out to August of 2030. We're proud that we secured such favorable terms because they're a direct result of the discipline we've infused in every part of our business over the past two years. We streamlined operations, made difficult calls like tightening credit sales, and embedded a cash flow first mindset in every part of the organization. Beyond refinancing, we're continuing to strengthen our balance sheet and improve cash flow through ongoing AR management and restructuring initiatives. One of these initiatives is our plan to exit the California market. While we're grateful for everything our California team has given Cresco Labs, including the Floracal brand and our quality at scale approach to cultivation. But the state's structural challenges have made it too difficult to generate sustainable profits. Stepping away will strengthen our margin profile, unlock resources that can be funneled into new growth, and bring our footprint in line with our long term strategic direction. Second, our focused footprint uniquely positions us to win with organic growth from our core markets and growth potential from target expansion markets. Everything we're doing is aimed at building the most productive, profitable, and cash generating footprint possible. One that can seamlessly integrate new states and assets. As previously stated, we will be opportunistic while being patient and disciplined in our capital allocation, prioritizing high return organic growth and M&A opportunities. We have ample organic growth opportunities materializing in the quarters ahead. For example, in Ohio, we're on track to open three new dispensaries before the end of Q126. The first of which opens in early fall, building on our number one retail share and number three branded product share in the state. In Kentucky is the first mover. We're making great progress on our cultivation build out. This quarter we executed an MSA with a Kentucky processing partner. It's an exciting milestone that will enable us to bring our full suite of branded products to patients. We're on track to have our first product in market in early 2026. In Pennsylvania, we're building on the strength of our number one branded share and fourth largest retail footprint ahead of adult use conversion in this $2 billion market. We opened our 18th dispensary in the state in May and we recently turned out our Mount Joy cultivation facility. With this added capacity, we're positioned to lead on pricing, drive volume growth and capture additional market share, regardless of the adult use timeline. With organic growth in hand, we've been waiting patiently for the right opportunities to take on capital efficient M&A. As expected, we're seeing more distressed assets for sale across the target markets, such as New Jersey and Maryland. We're one of the few operators without overlapping operations and license cap constraints in these markets, giving us a competitive and compelling long term growth story. Importantly, we know that once we acquire assets, we accelerate their performance. Take Pennsylvania, where we acquire a small dispensary group in 2024. We added them to our loyalty program and we increased shelf space for our house of brands. Together, this drove a 77% increase in year over year quarterly sales and over 200% increase in year over year EBITDA, a testament to the Cresco consolidation playbook in action. And lastly, our proven retail and wholesale capabilities will keep enabling us to outperform the market. Our operational strength across every part of the supply chain is a key differentiator that allows us to outperform in nearly every market we operate in. And our execution is getting tighter at every turn. We've maintained number one market share positions in Illinois and Pennsylvania, along with top five market shares in all of our limited license wholesale markets. We rely on a disciplined consumer focused approach to both wholesale and retail paired with exceptional execution across cultivation, manufacturing and production. In wholesale, as we previously mentioned on our Q4 call, we are ramping up production of premium flour and manufactured products in our Kinkakee, Illinois and Mountjoy, Pennsylvania facilities. This added cultivation capacity now gives us depth in the ability to flex up when the market calls for it, meeting the growing demand that price compression encourages. In retail, Sunnyside continues to outperform in an extremely competitive and fluid retail landscape by establishing customer loyalty, increasing basket sizes and delivering stronger unit sales year over year. Our dispensaries generate approximately 20% more revenue per store than state averages, a testament to our operational strength and careful attention to shopper experience. Competition is fierce in licensed captive markets where operators have identical store counts, yet our ability to consistently outperform peers underscores the strength of our retail model. According to hoodie data, we hold the number one retail share in both Illinois and Ohio, where store counts are tightly regulated. We're also gaining share in markets where we have smaller footprints. In Florida, we're sixth in market share while ranking only eighth in store counts. We're leaning into our expertise and repeatedly proving that we can win in both growth and margin constrained environments. In closing, Cresco is ready for cannabis's next chapter. In Q2, we delivered solid performance in line with guidance, maintained our market share in a highly competitive environment, continued to drive cash flow through operational discipline and signed a commitment letter to refinance our debt, which reduces the total facility size by 10% and extends the maturity date to 2030. This milestone reinforces our balance sheet, preserves our equity value, and creates financial flexibility for the years to come, giving us an even stronger foundation to execute against both near term priorities and long term growth opportunities. We've been playing the long game to create scalable, stable growth. With our debt refinancing behind us, we're on the offense, executing on organic initiatives while building a targeted pipeline of M&A opportunities in profitable strategic markets. That strategy is supported by a meaningful white space in our footprint with several high priority states still untapped, giving us a long runway for expansion. With that, I'll turn it over to Sharon to walk you through our Q2 performance in more detail.