Goodness Growth Hldgs Inc

being webcast live from the investor relations section of our website. Dial-in and webcast details for the call have also been provided in today's earnings release, which is also available on our website. Before we get started, we'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 Josh.

All right. Thanks, Sam. And thanks, everyone, for joining us this afternoon. Before we get into the details surrounding our fourth quarter results, I want to call out how excited I am about our future, particularly with respect to the momentum I feel among our team. Our industry focuses a lot on assets and politics, and I like to put the lens on talent and energy. We have a lot of work to do, and watching our legacy team embrace and collaborate instantly with new talent, and then to have that new talent articulate how welcoming and committed to improvement and growth they find us is the most rewarding element of this role for me. And you'll hear from our president, Amber, on this call, but I'd like to note my appreciation for how she's attacked her added responsibilities, and she's truly the catalyst for the overall energy. With that important introduction noted, I'd like to begin today's prepared remarks with an overview of key highlights from fiscal year 2023 on slide three of today's presentation, which should be available in the quarterly results and events and presentation sections of our investor relations website. As we've discussed, 2023 was a pivotal and transformational year for Goodness Growth. We entered the year in a significantly compromised financial position caused by Verano's wrongful termination of our merger agreement in October of 2022. Our teams, who at the time had been preparing for the expected integration with a much better capitalized operator, were suddenly faced with an existential threat that put our ability to operate independently longer term at considerable risk. Our board of directors and executive management team knew we had to pivot quickly in order to protect the continuity of our business. And in February of 2023, our year of cream and fire strategy was unveiled internally and soon thereafter disclosed to the investment community in conjunction with our subsequent results conference call. As a reminder, Our strategy name of Cream and Fire refers to the famous phrase, cash rules everything around me, as well as our focus on producing fire cannabis products that delight our customers. As we discussed at the time, it was critical for our organization to embrace a scrappy operator mentality. As we made swift moves to decentralize and infuse our organization with mature market talent, with our primary goals of improving our operations and quality of products, and protecting our cash position with a focus on driving improvements in operating profit as we work toward generating cash flow from operations. We entered into a collaboration agreement with Grown Rogue to accelerate our operational improvement initiatives across our core markets. And as we've discussed over the course of the past several quarters, we've been very pleased with the progress we have made to date to improve harvest yields and product quality across our operating footprint. And tying back to my initial comments about the importance of talent and energy, What's made this collaboration work is the people committed to progress on both teams. Collaborations are hard, and the Grown Rogue team is a key part of the cultural transformation we've made. The formation of our Weed Hustle office in early 2023 was also a catalyst for substantially improving the positioning of our product portfolio and driving value for customers in our key markets. And since then, we've developed much stronger capabilities to move inventory more quickly and convert product into cash flow. The launch of adult use sales in Maryland in the second quarter of the year was a critical development for our business, and the initiatives I just discussed have clearly translated out performance in Maryland's adult use market. This is particularly exciting as we await the launch of adult use sales in Minnesota in early 2025. We also knew we had to simplify the business with strategic asset divestitures, and we have since divested our former operations in New Mexico, and this afternoon announced that we've executed a binding term sheet to divest our New York operations to Ace Ventures. While these decisions were not easy for our team and have somewhat hampered our longer-term growth outlook, they were again mission-critical components in our ability to protect the long-term health of our company in the wake of Rano's wrongful termination of our merger. As disclosed with this afternoon's New York Investiture announcement, we plan to meet our obligation to divest our New York operations in the second quarter of 2024. We've executed a binding term sheet to divest our New York operations. With Ace Ventures, Ace has to meet a few closing conditions and is well positioned to do well in the New York market. This divestiture is later than we anticipated and committed to in our revised credit agreement. We have appreciated our secured lender's patience as we optimize our outcome in New York. This transaction, once closed, will significantly improve the performance of our go-forward operations and profitability. And we're also excited about the potential of our ongoing collaboration with Ace Ventures, which includes a 15% share of net profits, with an advisory agreement. Although we're displeased with how the terminated Bronto merger is forced and erected from New York, we're excited to support ACE, who stands to become the only minority-led RO license holder in the state. The ACE team brings a combination of deep cultivation experience with California OG roots, with a willingness to move to upstate New York, with a local ground game in New York City that I believe should support meaningful shelf space. Quality and price matter in every market, and that includes when competing with the illicit markets. Turning briefly to our litigation with Verano, it is progressing, and we expect to file a motion for summary determination in British Columbia within the next 30 days. The wrongful termination of our merger created exceptionally challenging circumstances for us, which included having little choice but to divest our New York operations, and we are seeking substantial damages for the harm that's caused our business and shareholders. As many of you have heard from me previously, I'm excited to be able to speak more openly about this litigation as an asset, and I'm confident that's coming soon. As a quick related tangent, as I find these topics intellectually interesting as well, we'd be happy to point folks to resources that help frame just how high the threshold is to walk away from definitive merger agreements. Or for a fun industry example, notice what the private player Pharmacan parted with when they mutually agreed to terminate a merger agreement with MedMen in 2019. I recall at the time, I was shocked they didn't simply highlight one of the many issues MedMen was dealing with as a material adverse event. I now understand why. Please turn to slide four of today's presentation, where we illustrate how the qualitative components of our cream and fire strategy outlined on the left side gained traction throughout the year, with some additional specificity on a couple of quarterly key financial metrics dating back to the fourth quarter of 2022. As we've discussed, growing into a better credit by improving our ability to generate cash flow has been the most fundamental focus of our operating strategy this year. And we've been able to demonstrate clear improvements in those areas with our second consecutive quarter of operating profit above $5 million. We've also included comparisons of these metrics for both full year 2023 and 2022 and are pleased with the improving trend in these metrics and our ability to sustain leaner costs. Total revenue excluding discontinued operations increased 34% year over year in the fourth quarter and 30% year over year for the full year. Performance has been driven by the combined benefits of our recent operational improvement initiatives and the launch of adult use sales in Maryland on July 1st. After experiencing meaningful year-over-year growth in Minnesota, catalyzed by the introduction of flour into its medical cannabis program, we are seeing growth in the medical market slow. This is an expected slowdown as the market anticipates the introduction of adult use in 2025. Amber will talk more about this, but our push in 2024 is as much about preparing for 2025 as it is the continued improvement supporting our current operations. Fortunately, these goals largely support each other. As I've mentioned previously, while early numbers in an adult use market can be noisy, we appear to be capturing incremental market share in Maryland, which can be seen in comparing our relative growth both sequentially and year-over-year with the state's published numbers. One quick aside. The two stores that we support as an advisor in Maryland have not performed as well as our own stores. And you'll see that we adjusted our fees to support our partners' business interests. And then to our benefit, we lowered the price of our purchase option as our long-term intention is to support moving these stores to better locations and acquiring them when the regulations allow. Our partner has an initial site identified that we're optimistic about for one of the stores. Finally, before I pass the call to Amber, I'd like to provide some clarifying comments on a couple of aspects of the business that relate to our credit facility and changes to our tax position. As we indicated in this afternoon's earnings release, until our transaction to divest our New York assets close, we're short of both our commitment to divest New York and New York's losses greatly compromise our ability to meet the performance-driven maturity date extensions within our credit agreement. That said, we've had productive conversations with Chicago Atlantic to secure an extension of our credit agreement and we expect to secure this extension during the month of April. It will include the ongoing commitment to divest New York in a timely fashion. Also, like some others in our position, please note that within our 10-K, we have adjusted our tax position to reflect our go-forward expectation to be filing as a normal taxpayer. In our reasonable belief, supported by a third-party legal opinion, Section 288 does not apply to solely intrastate cannabis-related business activities. As a result, we expect to file for tax refunds with the IRS for tax years 2020 through 2022 during the second quarter. As you can see on the face of our ballot sheet for fiscal 2023, we've accounted for an income tax receivable of $12.3 million, as well as an uncertain tax position liability of $22.3 million as a result of this change to our tax position. We believe this is a reasonable, practical approach to take, but there's no guarantee that the IRS will not challenge this position. That concludes my prepared remarks, and I'll now pass the call over to Amber Schimpa for some additional business highlights from the year and a review of our key performance indicators.

Thanks, Josh, and thanks, everyone, for joining us. I'm going to start on slide five of today's presentation, where we provide an update on our core market key performance indicators during the fourth quarter and through the fiscal year 2023. The positive traction we've experienced around our cream and fire focus is due to the efforts of our entire team. And let me say, what a time to lead here at Goodness. I couldn't be more proud of our group's energy and commitment to being better together. We've melded our seasoned, scrappy operators with gritty, mature market talent, which has sparked a drive and passion within our team that grows stronger each day. A huge note of gratitude to our team and recognition for them bringing the fire. We made great progress so far this year to improve the productivity of our facilities as well as the quality of product being produced. which has allowed us to lower prices with higher quality products that our dispensary customers and employees can then share with the customer. As you can see, the trajectory of total flower yields and percentage of A flower over the course of the last year shows considerable improvement. Our goal is to drive more sell-through of higher quality products at better value for customers, and we believe that our results to date on these important operational KPIs serve as strong indicators that we are positioned to have continued success achieving these objectives. On a consolidated basis, same-store sales increased approximately 30% during the fourth quarter. This performance reflects some continued challenges in the New York market, but we are pleased to see continued growth in Maryland and Minnesota of approximately 210% and 5% respectively during the fourth quarter. For the full year, same-store sales increased approximately 28%. We were also pleased to see improvement across all of our core markets and inventory turns after experiencing some variability in these metrics earlier in the year. And the improving trend in this metric demonstrates that we're improving our ability to turn product into cash flow much more quickly. On slides six and seven, we've highlighted some of the drivers of our success in 2023 with recent brand and product launches in the Maryland market. As Josh mentioned, our local team in Maryland has done a great job growing our market share in manufactured products, and we are very excited about the performance of our High AF brand of vapes and high-color gummies in Maryland. We plan to introduce additional product categories under the High AF brand moving forward and plan to introduce both of these brands into the Minnesota adult-use market next year. We've also had great success positioning our product portfolio to value shoppers across our operating footprint, and the launches of our Simple and Small-Ass Bud brands are continuing to perform very well within these corners of the market. Moving on to some state market updates on slide eight. Our home market of Minnesota continues to grow following the commencement of flour and edible sales in 2022, and we are looking forward to the launch of adult use sales in 2025. We anticipate a slower market until adult use launches, and we're taking advantage of this time to invest in enhancing our productivity and preparing our team for 2025. We expect to share some progress updates on these initiatives over the course of the next several quarters. In New York, as we disclosed earlier today, we have executed a binding term sheet that vests our New York operations to ACE Ventures and expect this transaction to close following regulatory approval before June 30th. Given some preliminary regulatory diligence, we believe New York's strong desire to have a minority-led RO can support an efficient timeline. We have entered into a collaboration agreement with ACE for management and compliance in return for a 15% share of net profits in New York moving forward. And we are excited to support ACE's entrance into New York's wholesale market once we receive regulatory approval for the ROND license. In Maryland, we continue to see strong revenue performance of our two green goods dispensaries and our recently executed consulting, licensing, and wholesale agreements with two additional dispensaries helped grow our presence in the wholesale channel. These two additional stores have been rebranded under the Green Goods name, and as Josh mentioned, we have an option to acquire these two stores once regulations allow. Revenue growth in Maryland has continued to outperform the market average over the past two quarters. According to the state's disclosures, total market sales in Maryland were up about 130% year over year in Q4. Our retail revenue was up 210%, and wholesale was up 134%, representing total growth of over 180% year-over-year. For the full year, the market was up about 54%, and we were up just over 100%. Before we conclude today's call, we've provided our customary financial detail slides for both the fourth quarter and full year 2023 for reference throughout the remainder of today's presentation. Slide 9 and 10 provide summaries of our core market revenue performance and key financial metrics from the fourth quarter and full year. And slides 11 through 14 contain summaries of our balance sheet, debt outstanding, share capitalization, and EBITDA reconciliation. For a complete review of state-by-state revenue performance, including non-core markets and discontinued ops, please refer to our Form 10-K, which will be filed with the SEC later today. I'll now hand the call back to Josh for some closing comments.