Cresco Labs Inc

Thank you. Good morning and welcome to Cresco Labs' third quarter 2025 earnings conference call. On the call today, we have Chief Executive Officer and Co-Founder Charles Dochtel, Chief Financial Officer Sharon Shuler, 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 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 and MD&A for the quarter ended September 30, 2025, on Cedar 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 most recent annual information form in 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 Cresco Labs' Q3 earnings call. This quarter demonstrated the power of our disciplined execution and resilient platform as we delivered consistent results while positioning CRESCO for the next phase of industry growth. The cannabis industry continues to evolve, entering a new era defined by scale, efficiency, and strategic leadership. Growth will come from increased consolidation and scale in existing markets, expansion in the new state-regulated markets, and by broadening our reach beyond the traditional state-regulated cannabis system. Cresco Labs is built for this moment. Our focus remains clear. Execute in our core markets with precision, strengthen profitability, and invest intelligently for long-term value creation. In Q3, Cresco Labs generated $165 million in revenue, up 1% sequentially. We produced $80 million in adjusted gross profit, $40 million in adjusted EBITDA, and $6 million in operating cash flow. Importantly, we completed our debt refinancing, reducing the size of the debt, extending maturities, improving flexibility, and reinforcing our balance sheet to fund future growth. This quarter also reflected our ongoing commitment to improving the quality of our earnings. We're focusing on durable, cash-generating operations and making portfolio decisions, such as our California exit, that strengthen long-term profitability and balance sheet health. The industry trends we've been watching over the last several quarters continue to play out, with clear signs of consolidation emerging across markets. Every decision we make is guided by one objective, building a more productive and cash-generating platform that delivers value today and creates substantial growth for tomorrow. Let me walk through how we're executing on that strategy. First and foremost, our number one priority is maintaining a solid balance sheet with a strong cash position. We've built a balance sheet that enables the stability and flexibility our strategy requires. With a solid cash position and debt refinancing behind us, we've successfully extended maturities, eliminated near-term obligations, and improved flexibility for future investments. We're now positioned to lean into disciplined M&A and broader growth initiatives. Our pipeline includes several compelling opportunities that align with our operational strengths, accretive, synergistic, and strategically located. The quality of deals available today is the strongest we've seen in years, and we expect M&A to become a meaningful growth lever in 2026. As part of our ongoing effort to strengthen our business and ensure long-term sustainability, we closed on the sale of our California operations on October 31st. While the transaction has a nominal cash value, it improves our go-forward profile by removing liabilities, eliminating operating losses, and reducing organizational complexity. California has been an important part of Cresco Labs' evolution, but stepping away allows us to focus resources squarely on our most productive and strategically aligned projects. We have a strong and flexible balance sheet with capacity for strategic investment that will be used to create long-term value for our shareholders. Second, our focused footprint uniquely positions us to win with organic growth from our core markets and growth potential from target expansion markets. we're methodically expanding in markets where we already lead while laying the foundation for new opportunities in ohio we're holding the number one retail share position as we've opened the first of three new dispensaries planned to open through early 2026. the new store's early performance has exceeded expectations validating our discipline site selection and operational playbook the next two ohio dispensaries are on schedule to open in the first quarter further strengthening our position in one of the most promising emerging U.S. markets. We're also making progress in Kentucky, where we're preparing to open operations in one of the country's newest medical markets. Our cultivation and processing facility build-out is advancing on schedule, positioning us to bring our consistent, high-quality products to patients starting in late Q2 and ramping up through the second half of 2026. We believe Governor Beshear and state leaders have developed a smart, sensible regulatory framework that's focused on safety, patient access, and responsible growth, and we're excited to be a part of it. While near-term financial drivers and disciplined execution are top priorities, we're also reaching beyond U.S. regulated markets to nurture opportunities that can grow our platform over time, including hemp and international markets. In the coming weeks, we will be taking an important first step globally by launching our flagship Cresco branded flower in Germany, marking our entry into the European Union. We've spent considerable time learning about the European market and believe Germany's well-structured medical framework and expanding patient base make it an ideal place to pilot our brand strategy and consumer insights model. This test and learn approach allows us to make small, cost-effective bets that have the big, long-term potential while keeping our core U.S. market performance at the forefront. We're in control of our growth story. Every decision to expand is wrapped in a clear understanding of where it can add value and how we can execute with discipline. We're balancing organic growth, nurturing long-term bets, and weighing new acquisitions and new channels to enable a resilient, profitable, performance-driven platform. And lastly, our proven retail and wholesale capabilities will keep enabling us to outperform the market. In wholesale, adding cultivation capacity has directly translated to performance gains. We grew share quarter over quarter in Illinois, Pennsylvania, and Massachusetts, landing number one branded share position in all three states, and maintaining top five positions across our limited license wholesale markets. Our deep expertise across cultivation, manufacturing, and distribution is making Cresco Labs the producer of choice for some of the most respected brands in the industry. Brands like Kiva and a growing roster of premium partners look to us for reliability, innovation, and consistency, qualities that define true category leadership. On the retail front, we continue holding top share positions in our limited license states, including number one position in Illinois and Ohio. We're tapping into our longstanding history of retail technology innovations to drive new efficiencies that also enhance the customer experience. For example, Sunnyside recently rolled out self-serve kiosks to improve transaction speed, increase throughput, and optimize staffing, all while maintaining high-touch service. The result is faster checkouts, higher customer satisfaction, and improved operating margins. Our integrated retail and e-commerce ecosystem continues to scale profitably while deepening shopper engagement. Recently, our Sunnyside.shop platform surpassed a billion and a half dollars in cumulative sales, a testament to the enduring strength of our omnichannel retail strategy and the loyalty of our customer base. Our wholesale and retail performance reflects our ability to execute with precision, adapt to evolving market dynamics, and lead through both growth and margin focus cycles. With these capabilities in hand, Cresco Labs is positioned to not only outperform the market, but also to exemplify leadership within it. In closing, Cresco Labs is ready for the next chapter of growth. In Q3, we delivered results in line with expectations, maintained our leadership positions across key markets, strengthened our balance sheet through the successful completion of our debt refinancing and streamlining our footprint. Together, these actions reinforce our financial foundation, preserve shareholder value, and create greater flexibility to invest in the future of Cresco Labs. This approach reflects the discipline that has guided us from the start, building a scalable, stable platform designed to outperform in every environment. With that, I'll turn it over to Sharon to walk you through our Q3 financial performance in more detail.

Thank you, Charlie, and good morning, everyone. We reported $165 million in revenue, representing a 1% sequential increase from Q2. Our results reflect the continued stability of our core business and the benefits of increased cultivation, which helped offset price compression across several of our markets. Wholesale revenue grew 10% quarter over quarter, driven by that expanded capacity and strong market share gains in both Illinois and Pennsylvania. On the retail side, one new dispensary opening in May helped partially offset continued price pressure across the network, resulting in sequential retail revenue down 4%. As discussed last quarter, gross margins were in line with Q1 as some of the one-time favorable mix and production factors we benefited from in Q2 did not repeat. The quarter reflected a mix of progress and expected transitory factors. We continue to make incremental operational improvements across our network, increasing yields, optimizing cultivation practices, and lowering unit costs. As we ramped production in Illinois and Pennsylvania, we sold through high-cost flour during the quarter, resulting in adjusted growth margins of 49%, consistent with Q1 and our guidance. We've made continued progress on streamlining our business, removing 2 million from adjusted SG&A compared to Q2. Our team's focus on the bottom line and unending quest for efficiency is leading to small savings across the organization that makes a collective difference. Adjusted EBITDA was 40 million or 24% of revenue, which is consistent with underlying performance trends when excluding the non-recurring benefits realized in the prior quarter. In Q3, we generated 6 million in operating cash flow, and invested $7 million in capital expenditures from Kentucky, as well as upgrades in Ohio and Florida. Year to date, we've generated $45 million in operating cash flow, resulting in free cash flow of $20 million. We ended the quarter with $82 million in cash, including restricted amounts after paying down $35 million of principal from our debt. With our debt refinancing behind us and no near-term cash obligations, our balance sheet is in a strong position to execute our strategy. Looking ahead to Q4, we expect revenue from our core platform to remain roughly in line with Q3. Expanded cultivation capacity in Illinois will help offset ongoing price compression across several markets and increase retail competition anticipated near high volume Sunnyside dispensaries. Revenue will be further reduced following our exit from California, which in Q3 contributed less than 3% of revenue on a consolidated basis. While our expanded cultivation network positions us well for 2026, we expect to continue selling through higher cost flour in Q4. This is the natural result of ramping new production with lower yields and utilization early in the process. We also expect price compression to continue to act as a headwind for gross margins. We're expecting SG&A to remain relatively stable going forward. While we'll continue to look for opportunities to optimize, the next phase of margin expansion will primarily come from top-line growth and operating leverage. Our team remains focused on disciplined execution and productivity, optimizing our asset base, and positioning the business for stronger margin contribution and growth in 2026. With that, I'll turn it back to Charlie for closing remarks.