Green Thumb Indus Sub Vtg

Good morning and welcome to the Green Thumb Industry second quarter 2021 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 star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jennifer Dooley, Chief Strategy Officer for Green Thumb Industries. Please go ahead.

Thanks, Andrea. Good afternoon and welcome to Green Thumb's second quarter 2021 earnings call. I'm here today with Founder and Chief Executive Officer Ben Kobler and Chief Financial Officer Anthony Georgiatis. Today's discussion and responses to questions may include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. These risks and uncertainties are detailed in the company's reports filed with the United States Securities and Exchange Commission and Canadian securities regulators, including our quarterly report on Form 10-Q, which we expect will be filed tomorrow. This report, along with today's earnings press release, can be found under the Investor section of our website. Greenstone assumes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. Throughout the discussion, Greenstone will refer to non-GAAP financial measures, including EBITDA and adjusted operating EBITDA. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is included in our earnings press release, and FDC and CDAR filing. Please note all financial information is provided in U.S. dollars unless otherwise indicated. Thanks, everyone. And now here's Ben.

Thanks, Jen. Good afternoon, everyone, and thank you for joining our second quarter 2021 earnings call. Strong momentum in our business continues. Our revenue for the quarter was $222 million, up 14% sequentially, and up 85% year-over-year. To give you a sense of the growth, this quarter's revenue exceeded our entire annual revenue in 2019, just 18 months ago. We boasted our fourth consecutive quarter of positive GAAP net income. We continued that positive free cash flow from operations, and adjusted EBITDA grew 11% sequentially to $79 million more than double the level from a year ago. During the quarter, we raised $217 million in a non-brokered private placement of senior debt, and we feel very comfortable with the balance sheet. We ended the quarter with cash and cash equivalents of $360 million, which gives us significant financial flexibility to invest for the future and strong returns for our shareholders. We continue to attract new U.S. institutional investors who are aligned with our long-term vision to create cannabis experiences that connect people and improve communities. To enact our vision, just last month, we launched a new brand called Good Green and announced the Leap Bake Off, both initiatives dedicated to creating more opportunity for underserved communities in the areas of education, employment, and expungement. In addition to high-quality products and authentic brands, our team's passion for these projects is real, and I am proud it is part of Green Thumb's DNA. Regardless of the current barriers limiting access to capital markets, U.S. institutions are demonstrating an appetite for greater access to cannabis investments, and we are excited about the momentum. The first half of the year felt very solid, and we continued to focus on execution. We are looking beyond the current year to optimize the tremendous potential when adult use sales begin in New York, New Jersey, Connecticut, and our recently entered market of Virginia. In each of the new adult use markets coming online over the next few years, we anticipate a surge in demand that will mirror what we've experienced first in Nevada, then in Massachusetts, and most recently in Illinois. History does not repeat, it rhymes. Our home state of Illinois continues to book record sales every month, and our team is preparing for the next few chapters. Demand remains strong across the country. It has been a busy few months for us as we expand and enter new markets. In addition to Virginia via Dharma, we closed on the acquisition of Liberty Compassion, a Massachusetts-based cannabis operator, adding greater capacity for us to serve a growing East Coast consumer base. We also expanded into Rhode Island with the acquisition of Vertically Integrated Summit. This broadens our footprint to 14 states and 62 retail locations. and puts us in solid position in the highly desirable northeastern market, where we now have operations in the contiguous states of Connecticut, New Jersey, New York, Massachusetts, Rhode Island, and Pennsylvania. We love the map. We accomplished this by remaining committed to our disciplined strategy to enter markets that meet our supply-demand requirements. These are highly coveted states that offer tremendous potential as we scale distribution of our cannabis products and retail experiences. The flower and the service keep getting better and better. On a personal note, I am excited that our acquisition partners chose Green Thumb. They didn't have to. They did so because of our reputation as a trustworthy and proven operator and a shared alignment of vision, principles, people, and community. I am committed to making sure we deliver on that. I am also very proud of what our team accomplished in the 90 days since our last conference call. As you can imagine, negotiating critical M&A deals and then integrating people, culture, and systems requires considerable time and effort. The team gets this done while completing other growth-critical initiatives like the first expansion harvest ahead of schedule in Oglesby, Illinois. Moving forward with our site in Warwick, New York, which is transforming a former prison to a cannabis campus and building out capacity in states like New Jersey, Ohio, and Pennsylvania. We are also optimizing brand distribution, including canned beverages, which continue to perform very well. Cookies on the Strip had a rousing opening as it becomes a top tourist destination in Vegas. Within our own brand portfolio, we seek to create some of the highest-valued, most-well brands and cannabis experiences that bring well-being to people and communities. We have brands distributed in 12 states, and we continue to scale our capabilities. There is still tremendous potential to build depth and breadth of brand distribution. We are also enjoying success with limited seasonal offerings like canned pineapple jalapeno and the incredible s'mores bar. At the core, we believe that find your rhythm is a means to more well-being for America. We know Americans want edibles but are a bit nervous. That is why Incredibles, the credible edible, can build trust and help lay the path. And we know that Good Dream can help anyone be good, feel good, and do good. Together and over time, we can actually make things better. As I mentioned before, we are pretty close to parity between our retail and CPG businesses on a gross basis. And over time, CPG growth will continue to accelerate as distribution meets the demand ahead. That is our focus every day. We have many levers for growth that will expand access to well-being through cannabis. Strong execution for our customers and disciplined capital allocation for our shareholders remain our top priorities. as we continue to deliver sustainable growth and returns. Today really is day one for the great American cannabis growth story. And there is so much opportunity for so many people and communities to win along the way. I've been saying that for a long time, so let me try to quantify it a bit for you. Legal US cannabis sales are currently on a run rate of $24 billion. That's because the second quarter of 2021 sales were $6 billion. That's a new record. $24 billion is very big, but it's just a start. We think it more than triples in the next decade. As an example, California grew 9% quarter over quarter on a base of about $1 billion as the legal regulated market grows. Colorado grew 25% in its seventh year of legal adult youth sales. States like New York, Virginia, Ohio, New Jersey are not even in the $24 billion number. That's 50 million Americans. Greensum has a nice position in each of those states. Because of this top-down and bottom-up analysis focused on the data and the consumer, we think our $80 billion industry size is too low. But even if you think it's around $80 billion, that means there's about $60 billion more of legal sales to come. We have confidence in those legal sales in the United States, regardless of the federal policy. And we believe that will lead to at least $100 billion of new market cap. That's $100 billion of new wealth creation. That's an unbelievable setup and honestly, very American. But the real questions are, how do we handle it? Who participates? And will we be pleased in 10 years looking back? I'm focused on that for Green Thumb and for the industry. and I am excited about the days ahead. We understand the privilege, and we understand the responsibility of this position. With that, I'll turn the call over to Anthony for his financial review. Anthony? Thanks, Ben, and good afternoon, everyone. Appreciate you joining us today. Before I begin, I'd like to give a special thanks to our team and shareholders for all their hard work, dedication, and trust. We delivered yet another record quarter, none of which would be possible without our extensive and growing Green Thumb family. For those that have been with us since the early days, we've shown that if you plant dice, you're going to harvest wind. For those that just arrived, the ride on the Green Thumb rocket ship is just getting started, so buckle that seatbelt. Today is day one for all of us. In the second quarter, the company generated $222 million of top-line net revenue, and $79 million of adjusted operating EBITDA. Total net revenue increased 14% over Q1, with gross CPG revenue growing 13% and gross retail revenue growing 15%. As a reminder, the difference between gross and net is intercompany. Similar to last quarter, there are three primary drivers to our top-line trajectory growth. Robust consumer demand, high quality differentiated product and execution. Number one, the tidal wave of demand for cannabis is real. Across the board, in every market we operate in, consumer demand for legal cannabis is going up and to the right. Number two, our differentiated product offering continues to resonate in our respective markets. We believe in quality over quantity and leading with the consumer. No everyday niche for our crew. Here at Green Thumb, we want the fire and more of it. Last, operational execution. We've said it since our first call as a public company in 2018. Enter, open, scale. In the face of tremendous growth and a myriad of complex regulatory environments, the team makes it look easy. The net result of everything above is another highly profitable quarter where the company generated gross margins in the mid-50s. While this figure is likely to decline over Q1, when we unpack the numbers, it makes sense given ramp-up costs related to our CPG expansions. I would assume that the business will continue to incur these sorts of expenses while still maintaining our intrinsic goal of keeping gross margins at or above 50%. On the SG&A side, excluding DNA and stock-based copy, normalized operating costs approximated $47 million, a $5 million increase over the $42 million incurred in Q1. As we head into the second half of the year, we plan to continue to accelerate our investments in our team and our infrastructure. We need a bigger boat and more team helping us operate the boat. In Q2, Total other income approximated $2.4 million, primarily driven by non-cash gain-through losses associated with our investment portfolio and the refinancing of our senior debt facility. As a result, the company generated over $79 million in adjusted operating VPA, close to 36% of revenue, and over $20 million in net income, our fourth consecutive quarter positive earnings per share. Moving on to the balance sheet, landed the quarter with approximately $360 million of cash. This is $80-plus million greater than last quarter that was supplemented by the $217 million non-brokered debt raise we completed in April. With this cash, we intend to double and triple down our bets in a number of key markets. Our patients and consumers have spoken. They want more Rhythm, Dog Walkers, and Incredibles, and our capital spend should help address this. In closing, we wanted to welcome the Liberty, Dharma, and Summit teams into the Green Thumb family. We're excited about the additional reach these businesses and teams provide as we continue our expedition into Prohibition 2.0. We hope everyone enjoys the balance of their summer and look forward to speaking with you again in a few months. Back to you, Dan. Thank you, Anthony. Before we go, I want to share a little more about the programs I mentioned earlier and our efforts to expand access to opportunity and well-being in underserved communities, especially those harmed by the war on drugs. In this country today, there's a 90% racial wealth gap between white and black Americans due to systemic inequality. There is not a person of green thumb who is in trouble by this shocking disparity. And so in July, we joined forces with 90 to 0. This group is developing a roadmap to advance racial equity by growing black talent and increasing capital to black businesses. With the support of leading CEOs from companies like Starbucks, Goldman Sachs, and the United Way, and with the help of two-time NBA MVP Steph Curry, we are honored to be the first company to represent cannabis in driving this change. with 90 to 0. We also announced the upcoming launch of our new brand called Good Green. To advance our mission of expanding access to well-being through cannabis, sales of Good Green products will fund grants to nonprofits that support the brand's three pillars, education, employment, and expungement. We encourage you or a 501c3 you know, or people you know who know a 501c3 that fits our mission to apply at our website, good.green. To give the program a head start before actual product sales, we are proactively committing at least $1.3 million over the next 18 months. And the application process is now open. The application process is a means to figure out who and where to give the money in order to generate the largest impact. This builds on our existing social impact program, Growing for Good, which is committed to advancing diversity and inclusion, restorative justice, and social equity within the cannabis industry. Our entire team's dedication to these important social issues is inspiring. I am also excited Green Thumbs landing in the number two spot of Crane's fast 50 list of rapidly growing companies in Chicago. We feel the growth and we are ready for more. In terms of COVID, we can only hope that the Delta variant will not lead to a repeat of 2020. Based on the data, we encourage Americans to get vaccinated to protect yourself, the elderly, and our kids. While it's still too early to determine the ultimate impact of COVID this time around, we have learned how to live with the pandemic and we fully appreciate the essential role cannabis and our industry plays in providing well-being and comfort to tens of millions of Americans. Rest assured that your company is stronger than ever and committed to becoming better every day. And finally, I want to say thank you to Jennifer Dooley. Many of you remember her from the Roadshow. Five years, tantalizing brands, one IPO, 13 conference calls, lots of laughs, lots of learning, and lots of good fun. So on behalf of the shareholders, we appreciate your contribution and wish you well in your next chapter of life. Thank you, Jen. With that, I'll turn the call over to the operator for questions.