3/1/2022

speaker
Operator
Conference Operator

Good afternoon, and welcome to Green Thumb's fourth quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the conclusion of formal remarks. During the question and answer session, we would ask for a limit for one question and one follow-up question per person. As a reminder, a live audio webcast of all the call is available on the investor relations section of Green Thumb's website and will be archived for replay. I'd like to remind everyone that today's call is being recorded. I'll now turn the call over to Grace Bronte, Corporate Communications. Please go ahead.

speaker
Grace Bronte
Corporate Communications

Thanks, Anthony. Good morning and welcome to Green Thumb's fourth quarter 2021 earnings call. I'm here today with founder and CEO Ben Kobler and Chief Financial Officer Anthony Georgiotis. 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 earnings press release issued today, along with the reports filed with the United States Securities and Exchange Commission and Canadian securities regulators, including the annual report filed on Form 10-K, which we expect to file later today. This report, along with today's earnings release, can be found under the Investors section of our website. Green Thumb 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, Green Thumb 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 SEC and CEDAR filings. Please note, all financial information is provided in U.S. dollars unless otherwise indicated. Thanks, everyone. And now here's Ben.

speaker
Ben Kobler
Founder & Chief Executive Officer

Thank you, Grace. Good morning, everyone, and thank you for joining our fourth quarter and year-end 2021 earnings call. 2021 was a great year for Green Thumb. Our team's strong execution delivered results we are proud of. For the full year, revenue grew 61% to $894 million and gap net income more than quadrupled to $75 million. Increased scale and operating leverage drove adjusted EBITDA growth of 71% to $308 million. Interestingly, we committed over $200 million in CapEx to invest ahead of the demand curve in the U.S. and by faith that we can underwrite. We delivered our sixth consecutive quarter of positive gap in income and eighth consecutive quarter of positive cash flow from operations. But beyond the numbers, we're grateful to our team, our customers, and our communities who supported us along the way, and we are all even more excited about the future. It can be difficult to avoid the noise in cannabis. Plenty of wormholes and dead ends of noisy chatter. I believe we have done an okay job filtering out that noise, focusing on where the puck is going, and studying the tremendous potential of the great American growth story. The growth trajectory may not be linear, but over the long term, we are quite confident it will be up and to the right. The timing of the rollout of adult youths in various states is quite difficult to predict, but when it happens, we are confident that the demand is real. While no company is immune to competitive pricing, we at Braindump have focused on premium cannabis and developing brands that are in high demand and less prone to pricing pressure, while at the same time investing in scale production of certain items that will drive down the marginal cost per unit. As we've been saying for quite a while, our long-term adjusted EBITDA margin goal of more than 30% remains intact. It is worth noting that some states sales trends vary quite a bit month to month. And that is not surprising in this emerging industry, given what's going on. So while Illinois saw sales volumes decrease in January, December was a record month. And for the full year 2021, total sales grew 67% to $1.8 billion year over year. That's Illinois alone. Overall demand remains healthy, but the Illinois market is being artificially capped by the lack of progress in Springfield to issue social equity licenses and diversify the ownership base in the state away from what is really a white-dominated group of men. All is not lost for Illinois in social equity. One, we think the constructive conversations with the votes in power to resolve the issue would help. Two, Illinois will be a blueprint for how not to achieve any equity or how not to let anybody black or brown into the industry. This is actually quite a good thing, in our opinion, because we believe we need to create a culture where it's okay to make mistakes, but it's not okay to learn from them. And so we're seeing other states with equity provisions in their cannabis laws study Illinois as a cautionary tale so we can all learn and we can all get better together. There's a lot of discussion about cannabis reforms and new laws at the federal level. While the market may be waiting with bated breath, we at Green Thumb are not. We think we are in an optimal position to take advantage of the changes that seem inevitable. But I would repeat what I've said before, we operate our business without the need for federal change. As you can see, despite a wonky 280E structure, the business was able to generate over $132 million of cash flow from operations and over $75 million of GAAP net income. That's about 33 cents a share. Until then, we'll be executing a plan that puts Green Summit in position to win based on what we know now, not what may or may not happen sometime in the future. And the core thing we know now is the American consumer is choosing cannabis for well-being. So there are many hurdles in these emerging industries, especially those with decentralized regulatory structures. So our plan remains very simple, not easy. You want to execute the business plan to focus on the consumer and the product. Everything we've accomplished in 2021 was specifically designed to build long-term value for all of our stakeholders. And so now I'll point out some of the major achievements in 2021 that reflect our enter open scale strategy. This has really been our North star since inception. So starting with enter, we entered three new states in 2021, Virginia, Rhode Island, and Minnesota. We entered Virginia through our acquisition of Dharma in July when we acquired a production facility and one retail store. Since then, we've opened three additional retail locations and we continue to bolster our position both on retail and production ahead of adult use sales in 2024 or maybe sooner. Rhode Island. While the smallest state by area, It is actually the second most densely populated after New Jersey. We acquired one of three available state licenses in August, which came as a medical dispensary and a cultivation facility. And most recently in December, we're super excited as we entered Minnesota through our acquisition of Leafline Industries, which is one of only two licensed cultivators in the Minnesota cannabis market. And as you know, Minnesota and Colorado have approximately the same population of 5.7 million people. With this transaction, we added five open medical dispensaries and a large cultivation production facility. Due to some of the details on the licensing and the medical program, Minnesota is really an underserved state, and we believe we can expand our capabilities to provide patients with greater access to well-being through cannabis. In fact, this week, maybe today, the first legal sales of flour are beginning, and our Minnesota stores are proud to offer several strains of flour to patients for the first time ever. Having done this a few times, I would encourage patience for the patients as the market begins to accelerate. We believe tomorrow it will only get better. With Minnesota, we expanded our footprint to 15 states, and we love our 15-state market, especially considering that our cannabis operations now serve over 50% of the U.S. adult population. Furthermore, several of our states, it's really important to note, Virginia, New York, New have all half the W's and it's on the near term, medium term horizon. Here at Green Thumb, we really like where our chips are on the board. The open part of our strategy. In 2021, we made a lot of progress opening new stores. We added 22 stores to the family. We opened 10 and acquired 12 in various deals. I'll walk through a few. We ended the year with a store count of 73, and as of today, sit at 76. As always, when it comes to new store roll-ups, we undergo a rigorous due diligence process, which includes determining the best use of capital to achieve the highest returns. We opened new stores in Nevada with Rise Reno, a third store in New Jersey in Bloomfield that we encourage you all to come to soon, and an additional store in Pennsylvania with Rise Warminster. In Massachusetts, a combination of acquisition and new store openings, we opened five new stores for a total of six, three adult use and three medical. And we're excited about the most recent store, Rise Chelsea, just outside of Boston, which gives us a unique six-store footprint in the Commonwealth. We have four locations in Virginia, two Rise stores in Salem and Abingdon, and in February we opened two more, Rise Christiansburg and Rise Lynchburg. And in Illinois, we expanded our Rise Mondelein store to enhance our guest experience with an on-site consumption lounge and private smoke-easy. We also encourage all of you, if you're in Chicago, it's close to O'Hare, be in touch, make a reservation. We'd love to welcome you out there. Major hats off to our retail team for an extraordinarily productive year. And if we look at the third part of the business plan, scale. To position our company for sustainable, profitable growth, we must understand and operate with scale. Beyond scaling retail locations, it also requires investments in building the infrastructure to support growth. We have been building, expanding, and improving several production and cultivation facilities in places like Illinois, Ohio, Massachusetts, New York, New Jersey, Minnesota, Rhode Island, and Virginia. That's where the CapEx is going that you see that we've spent. Our end game is not only to stay ahead of the demand curve, especially in those states that passed all these legislation, but it is also to produce the highest quality and safest cannabis experiences for our consumers. And all of these dots must be connected in order to achieve our ultimate goal, building brands at scale to satisfy the American consumer's growing demand for well-being through high-quality, safe, and reliable cannabis products. We're very proud of our family of products, and the early consumer relationships being formed with those brands. Rhythm, Incredibles, Dog Walkers, Bebo, Dr. Solomon, and now Goodgreen have the brand attache needed to build what we would like to see. The scale we have built, combined with the information that we have developed, should set us up to make high probability, well-informed decisions. And while this may sound ambitious, it is not. Each day, I'm reminded of the power of that special consumer connection with the brand that truly makes all of this possible. And as you all know, listening to this call and calling this space, cannabis is a complex business. But rest assured, you can count on us to thoughtfully execute our strategy that has been working since we started this incredible journey. We have accomplished a lot in a short period of time, but I truly believe this is just the beginning. There's a lot of opportunity ahead. We will take it in chunkable bites that we can digest and that we can execute against. We like having optionality that comes with positive free cash flow after tax and a strong balance sheet. We like growth, but not for growth's sake. We're building green thumb to prosper over the long term so that all of our many stakeholders may also prosper. With that, I'm going to call over to Anthony for his financial review.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-