Goodness Growth Hldgs Inc

Ladies and gentlemen, thank you for standing by and welcome to Goodness Growth Holdings Incorporated second quarter 2021 earnings conference call. At this time, all attendees are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. And to ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. Thank you. Now I would like to hand it over to Mr. Sam Gibbons with Investor Relations. Sir, please go ahead.

Thank you, Ruel. Thanks to everyone for joining us. With me on today's call are our Chief Executive Officer, Dr. Kyle Kingsley, and our Chief Financial Officer, John Heller. Today's conference call is being webcast live from the Investor Relations section of our website. Dial-in and webcast details for the call have also been provided on slide three of today's presentation, which is also available on our website. Before we get started, I'd like to remind everyone that today's conference call may contain forward-looking statements within the meaning of U.S. and Canadian securities laws. These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events and those described in such forward-looking statements. For more information on forward-looking statements, please refer to cautionary note regarding forward-looking statements in today's earnings release. Now I'll hand the call over to Dr. Kingsley. Thanks, Sam.

Good morning, everyone, and thank you all for joining us today, and to all of you who attended our Investor Day events in June for the unveiling of our Horizon Strategy. For those interested in watching the webcast replays and viewing our Investor Day materials, you may do so via the investor section of goodnessgrowth.com. We'll discuss our progress on several of the initiatives announced at Investor Day during today's call, but I'll begin on slide four of today's presentation, where we've provided a summary of highlights from the second quarter. Second quarter revenues were in line with our expectations, and we achieved record gross margins during the quarter through continued operating improvements and greater scale across our core markets. Total revenue of $14.2 million grew 16% compared to quarter two last year, with continued organic growth across each of our markets, excluding contributions from our former Pennsylvania and Ohio subsidiaries. Second quarter revenue grew 45% and 8% sequentially compared to quarter one. As we discussed on last quarter's call, the move to our new 110,000 square foot cultivation facility in Massey created some temporary impacts on our wholesale performance during the first and second quarters. However, we recorded our first wholesale sales from the new facility in June, and we expect our combined operations in Maryland to be back to normalized production levels by the end of the third quarter. The additional 75,000 square foot expansion of cultivation in Massey remains on track to be completed by the end of the third quarter. And once finished, we'll be one of the largest-scale producers of biomass and manufactured products in the Maryland market. Our green goods dispensary in Frederick is continuing to grow sales each month. We believe there's still upside for this location as we introduce new products and form factors from recent upgrades to our processing facility in Herlock, Maryland. As a reminder, this facility will enable us to offer a full suite of medical to more adult-use-leaning products, including live resin concentrates like shatter and wax, as well as gummies and hard candy edibles. We're also looking forward to contributions from our second dispensary in Maryland through our pending acquisition in Baltimore, which we announced at the end of last month, which remains subject to regulatory approval and other customary closing conditions. This dispensary is currently a lower revenue-generating store than our green goods in Frederick, but we're excited by the opportunity to increase retail sales in the Maryland market. Given our substantial increase in production capacity, we expect this acquisition to improve our profitability in the state once the acquisition is closed and we transition to the green goods brand and shift the product mix in the store more toward our manufactured products. The SKU pipeline we're developing in Maryland represents the widest selection of products across our portfolio. And we were very pleased by the recent review of our green goods dispensary in Frederick by Maryland's Leaf Magazine, which noted that the quantity and quality of our selection of concentrates is one of the best in the state. Profitability during the first half of the year has been impacted by an increase in expenses that will support future growth across our portfolio. As a reminder, we're operating four new green goods stores in Minnesota this year and have increased G&A to support our expansion projects in Arizona, Maryland, and New Mexico. We've also increased marketing expenses as we prepare to introduce new recreational use products and brands across our footprint. As we progress through the second half of the year, we should begin seeing operating leverage materialize as the additional biomass production in Maryland and Arizona come online, and our new dispensaries in New Mexico ramp up to their full potential. As a reminder, in New Mexico, our recently completed 13,000-square-foot cultivation expansion is now fully operational, and we're looking forward to the expected commencement of adult-use sales next spring, pending development of operating regulations. Our two new green goods dispensaries in Las Cruces and Albuquerque have received regulatory approval and are now operating, bringing our total number of operational dispensaries in New Mexico to four. In Minnesota, the state recently approved the addition of flour to the medical program in spring of next year, and we're in the process of ramping up production capacity to capitalize on this growth opportunity in our home market. Our cultivation teams across our footprint are focused on flower production and increasing flower strain variety and quality as we prepare for transition to adult use markets and for the addition of flower in Minnesota. We've recently improved the strength of our cultivation teams with new growers in multiple markets that we've hired from recreational markets like Colorado and Arizona. And these teams are focused on building strain portfolios to have at least 20 flagship strains with higher THC content in production at all times. We plan to have additional strains in rotation at smaller scale. to rotate into our dispensaries throughout the year. These strains include both workhorse commercial strains and more boutique strains at lower level of production. By the end of 2021, we expect to have a wide array of strains that we can produce with consistent quality and content in each of our markets, which will give our sales and marketing teams much more flexibility with product offerings than we've had historically in these predominantly medical markets. From a development standpoint, the addition of a second nine-acre outdoor shade house in Arizona is on time and should be completed by the end of the third quarter. We expect that additional biomass from the new field will help accelerate the trajectory of revenue growth in Arizona in late quarter four and into next year. As many of you know, as we've discussed in Vestor Day in New York, we recently received regulatory approval from the state to significantly expand our cultivation and processing capacity to There have been some delays in the formation of the state's oversight board for the recreational use program, but over the next several weeks, we expect to be in position to announce more details regarding the timing of the beginning of construction of the new facility, which we will build on the additional 96 acres of land we purchased adjacent to our existing site near Albany. Our retail team has also been busy working to identify and secure locations for our new dispensaries in the state. We're looking forward to sharing details of these locations in the coming months. We have a lot of exciting opportunities and growth in front of us, and we're looking forward to a stronger second half of fiscal year 2021 as the first portion of our expansion projects come online. We're confident that our efforts to scale production and expand our retail dispensary footprint will drive even stronger financial performance through fiscal year 2022 as most of our core markets benefit from improving regulatory environments or transition to adult use programs. That concludes my prepared remarks, and I'll hand the call over to John for his review of the financials.