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spk09: Good afternoon, and welcome to the Green Thumbs fourth quarter and full year 2022 earnings conference call. At this time, all participants are in a 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 of one question per person. As a reminder, a live audio webcast of the call is available on the Investor Relations section of Green Thumbs' website. and will be archived for replay. I'd like to remind everyone that today's call is being recorded. I will now turn the call over to Shannon Weaver, Vice President of Communications. Please go ahead.
spk10: Thank you, Betsy. Good afternoon, and welcome to Green Thumb's fourth quarter and full year 2022 earnings call. I'm here today with founder and CEO Ben Kobler, President Anthony Georgiades, and Chief Financial Officer Matt Faulkner. 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 2021 annual report filed on Form 10-K. This report, along with today's earnings release, can be found under the Investors section of our website. Greensum 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, Greensum will refer to non-GAAP financial measures, including EBITDA, adjusted operating EBITDA, and adjusted net incomes. 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.
spk05: Thanks, Shannon. Good afternoon, everyone, and thank you for joining our fourth quarter and year-end 2022 conference call. have evolved the format for today's call now that anthony has assumed the role of president and matt is our new cfo i'll lead off with an overview of our results and some observations on the current state of the industry anthony will discuss our operations matt will dive into the financials and then i'll close with some final comments all right so let's get started we feel good about our fourth quarter and full year 2022 results hosting 259 million dollars of revenue with $81 million of adjusted operating EBITDA, and $1.02 billion in sales, with $311 million of adjusted operating EBITDA, respectively. Like other companies across industries, we face new challenges in 2022. The highest inflationary environment in 40 years has hit consumers in the pocketbook, high interest rates that further squeeze access to capital, especially in cannabis, and the concern about a recession that continues to loom over the economy. Even so, Green Thumb reached a new milestone in 2022 as we crossed $1 billion in revenue. This is a 14% increase in revenue year-over-year, and it represents nearly 5x category growth, which was 3%. But 2022 was not just an income statement differentiator for Green Thumb. We are also proud of our year-ending cash position of $178 million and full-year cash flow from operations of nearly $160 million, both of which are net of paying the government almost $120 million in cash. Additionally, in 2022, we extended the maturity of our senior debt $250 million at 7% to April 2025. On a GAAP basis, we reported a net loss of $51 million in the fourth quarter and net income of $12 million for the year. both of which included $89 million impairment charge related to our Nevada business that Matt will cover in more detail. Without this impairment charge, our net income would have been $12 million for the fourth quarter and $75 million for the year. I also want to point out that concerns around price compression in our industry are very real. The days of bad margins and easy money in cannabis are waning. As people digest punitive tax rates and high costs of capital, the dollars run out and margins slip. We are in the midst of a washout that will leave the industry with fewer operators, not more. This is ironic as politicians and operators are talking about including more folks, not less. The pricing pressure has squeezed margins to a spot that given 280E, there is not the cash flow for the marginal player. But if we zoom out, we see year-over-year unit growth of 28%, which is the best indicator for us of debt consumer demand given the changes in pricing. This massive unit growth on a like-for-like basis continues to show us that cannabis is an essential purchase for American consumers. By now, you probably know that cash is king at Green Thumb. It guides every decision we make and every dollar we spend. Given no meaningful federal relief on 280E and banking restrictions, having a strong balance sheet is absolutely critical to executing our growth strategy and creating sustainable value for our stakeholders. Over the past three years, we have paid $340 million in state and federal income tax. To give you a glimpse at some of the irony in current tax policy, during that same time, Illinois collected over $1 billion in cannabis tax dollars. Yet our business and new social equity startups in Illinois cannot deduct dispensary employee wages or dispensary rent on their Illinois tax return. A solid double dip by the state. The U.S. cannabis industry reached $26 billion in 2022. That is tremendous growth from virtually zero a decade ago. This kind of growth attracts a lot of prospectors and get-rich-quick hopefuls. For a variety of reasons, these folks will get caught and eaten by the bear. We believe true success in this industry boils down to managing capital and producing amazing products. We believe in Rhythm, Dog Walkers, Incredibles, and Bebo. We've been doing what we said we would do since going public in 2018. So by now, most of you know us. Focused, disciplined, hardworking, and true believers in the right to well-being through cannabis and the long-term viability and vibrancy of our industry. For those just getting to know us, we look forward to demonstrating these traits to you consistently over the short and long term. We are confident that our company is in good shape to weather the macro turbulence by paying attention to the fundamentals, studying the consumer, and practicing common sense while running a sustainable business. What does worry me is the dimming promise for fresh participation in this industry, especially for black and brown entrepreneurs. Green Thumb has strongly advocated for the opportunity to build wealth among those most impacted by the war on drugs. With the best intentions, many states instituted social equity license programs. This generated a lot of excitement and hope in those communities. But there's been some unintended consequences that have led to widespread disappointment. When you're in an industry with severely restricted access to capital and you have to contend with the 280E tax penalty as a single operator, it becomes very difficult to create real value once awarded a license to operate a retail or cultivation facility. The very people that social equity licenses were supposed to help are left pretty helpless. We believe everyone would benefit from a solution to these problems from the federal government. Consumers would have more buying options, a new cohort of entrepreneurs would emerge, communities would thrive from new business formations, and existing operators could expand product distribution. Until then, Green Dump will continue to fight the good fight by advocating loudly and supporting organizations and programs geared towards preparing those entrepreneurs for the hurdles ahead. It is by no means hopeless, but it's taking too long for state social equity programs to achieve meaningful results. With almost 9 out of 10 Americans favoring some form of cannabis-led legalization, you would think federal representatives would pay closer attention to their constituents and pass safe banking. But right now, the best way to create change is to drive more people to vote, especially the younger generations. That's why Rise Dispensaries is a premier sponsor of Ed Count's Cannabis Voter Project, and we look forward to registering new voters and increasing voter participation across the country at dispensaries as well as concerts and festivals. We look out and continue to see an industry that can triple in size over the next decade. And while we have entered the middle innings, this is a marathon, and not all runners will finish. We are confident in the agreements we have in place since 2014. We have the right team, the right assets, and the right states. We respect the plant, believe in the product, and the well-being it creates. Now I'll turn the call over to Anthony, our newly appointed president, to talk about our operational progress in 2022 and what to expect in 23. Anthony?
spk15: Good afternoon, everyone. Thanks for joining. As Ben mentioned, despite experiencing a number of headwinds outside our control, 2022 is a solid year for Green Thumb. We generated record revenue and adjusted operating even DA. We completed the rebranding of our RISE retail store model concept and rolled out throughout 2023. We ended December with $178 million in cash, Notwithstanding the $237 million in gross capex we invested back into the business throughout the year, in our favor, we generated $159 million in operating cash flow while remaining 100% current on our taxes with our largest financial partner, Uncle Sam. Other accomplishments include the launching of adult use sales in Rhode Island and the completion of CPG capital expansion projects in Ohio, Maryland, Pennsylvania, Florida, and New Jersey. In addition, the company drove expansion of its Rhythm, Dog Walkers, Bevo, and Incredibles brands through the launching of additional Rhythm flower strains, the Dog Walker 12-pack, and a variety of ratioed gummies from Bevo and Incredibles to address the effect-based market, such as the Snoozy or Berry gummy. Yet while our business and financial performance was respectable, it was a tough year. We experienced price compression in many of our markets. We lived through a hyperinflationary environment combined with a global supply chain crunch that drove up both capital investment costs as well as operating costs. And we got left at the altar by our friends in Washington on fundamental basic banking reform. Unfortunately, as we look ahead, it seems the macroeconomic and consumer challenges of 2022 will remain with us for a while. As a result, now more than ever, we believe that cash flow generation and balance sheet management are critical components of long-term success. This bodes well for Green Thumb shareholders, as both are core to our DNA and have been since our founding in 2014. At the same time, not all is doom and gloom. We have a number of positive catalysts that should allow us to continue to grow revenue and generate healthy cash flows, even if various fundamentals in many of our markets don't improve. They include opening of additional retail stores, pennsylvania nevada minnesota virginia and florida continued strong momentum in new jersey virginia minnesota connecticut and rhode island strong demand and shared growth for rhythm flower where we continue to leverage our best-in-class indoor infrastructure to compete at the premium end of the value chain and the potential commencement of adult use sales in maryland as we look ahead to the balance of the year Within CPG, we intend to continue to focus on the consumer through innovation and expansion of our product portfolios, as well as improving overall operational efficiency and product quality. In retail, we will focus on execution of our corporate rebrand, further development of our omni-channel strategy, and keeping substantial product depth and diversity on our shelves at industry-leading value. Of course, none of our success would be possible without our incredible team and all their hard work and dedication. As I've assumed the role of president, it's more clear than ever that the star of our team is the team. And in order to continue to thrive, we would need to work together to utilize the playbook that largely got us here. Number one, continue to closely manage our balance sheet, especially our cash levels. They are outstanding in total investment and inventory. Two, maintain strict discipline on all capital spending and operating expense investments. Three, Operate the business with a focus on cash flow generation above all else. Four, improve operational efficiency, especially on the CPG side of the business. And five, continue to build and develop our team, as they are the ones that make the magic happen each and every day. With that, I'll turn the call over to Matt Faulkner, our new CFO, for his review of Q4 and 2022 results. And while Matt may be a new name for all Q, Ben, Matt, and I have been working together since prior to us going public in 2018. and he's been a key contributor to our success over the years. So welcome, Matt.
spk02: Thanks, Anthony, and hello, everyone. I'm happy to be talking to you for the first time from this seat. As Ben mentioned, we generated just over $1 billion in revenue in 2022, a major achievement and milestone for the company. This represented a 14% increase compared to the prior year. We reported fourth-quarter revenue of $259 million, 6.4% increase over the fourth quarter last year. The year-over-year increase was primarily driven by the legalization of adult use sales in New Jersey and revenue generated from acquisitions made throughout 2021. Other key contributors to our year-over-year performance include the expanded distribution of Green Thumbs branded products, three new store openings, and increased traffic in the company's 77 open and operating retail stores. Overall retail revenue increased 14.2% versus the fourth quarter of 2021 and 24.1% for the full year. Fourth quarter comparable sales increased 3.4% over the prior year on a base of 65 stores. Consumer packaged goods gross revenue increased 1.7% versus the fourth quarter and 6% for the full year. revenue for the fourth quarter last year. For the full year, gross profit was $504 million or 49.5% of revenue versus $492 million or 55.1% in 2021. The decline in gross margin percent for the quarter and year was primarily driven by price compression and inflationary factors. Turning to OpEx, selling general administrative expense for the fourth quarter was $80 million or 30.9% of revenue quarter 2021 SG&A excluding depreciation amortization one-time transaction costs and stock-based comp which we refer to as normalized operating costs approximated 50 million compared to 53 million in Q3 and 57 million last year cost control in this current environment is critical Total SG&A for the full year was $294 million or 28.9% of revenue, an increase from $277 or 31% of revenue in the prior year. Normalized operating costs as a percent of sales for the year was 21.3% compared to 22.2% last year, translating to a $9 million reduction in cost for the year. During the fourth quarter of 2022, $89 million related to its Nevada business. This consisted of two charges, a $58 million goodwill impairment charge and a $31 million write-off of the Essence trade name as a result of the RISE rebranding. The company generated a net loss of $51 million or 22 cents per basic and diluted share during the quarter. This compares with earnings of 10 cents per basic and diluted share reported last year. Excluding the non-cash impairment charge of $89 million, adjusted basic and diluted earnings per share were $0.05 for the quarter. Adjusted to operating EBITDA, which excludes non-cash stock-based compensation, other non-operating costs, and the impairment charge I just described was $81 million, or 31.3% of revenue for the quarter, as compared to $76 million, or 31.2% of revenue for the fourth quarter last year. Improvement in operating costs as The company generated net income of $12 million or $0.05 per basic and diluted share for the year. Excluding the non-cash impairment charge of $89 million, adjusted basic and diluted earnings per share were $0.32 for the year. Adjusted operating EBITDA for the full year was $311 million or 30.6% of revenue compared to $308 million or 34.5% of revenue last year. On the liquidity front, we ended the year with a strong balance sheet including cash $178 million, and working capital of $205 million compared to $160 million last year. In summary, we feel good about our Q4 and full year results and look forward to the future. We've been thoughtful and deliberate in choosing the right markets, expanding our branded product distribution to go deeper in these markets, and investing wisely in facilities to meet consumer demand. As we look forward, we'll continue to maintain our focus shareholders. With that, I'll turn the call back over to Ben.
spk05: Thank you, Matt. In closing, I'm very grateful to the entire Green Dump team, from our incredible cultivators who grow the highest quality flower to our thousands of team members who serve our patients and customers in our dispensaries across the country. The combined efforts and dedication of our team delivered outstanding results in 2022. This year, we published our inaugural social impact report. In building the report, I was struck by how important creating meaningful change is to Green Thumbs culture. It's the glue that holds us together, from the plants we grow to the products we produce to the well-being we deliver to customers. You can find our social impact report on our website, and we hope you take a few minutes to read it. I am optimistic about the future of the U.S. cannabis market and Green Thumbs' leadership role in it. And while cannabis is a complicated, highly regulated business, The demand from Americans remains. We're also living with a great deal of uncertainty, economic pressure on consumers, a highly divisive federal Congress, and global anxiety. All of these things are beyond our control, so we will focus on what we can control, how and where we invest your dollars, and the quality of Rhythm Flower, Dog Walkers pre-rolls, and Bebo gummies. We need to concentrate there, and the rest will follow. We are intensely focused on cash generation and best use of capital to deliver returns and create long-term value for all of our stakeholders. Come what may in 2023, we are prepared to weather it while keeping our eyes fixed on the horizon. The long-term cannabis opportunity remains immense if you have the right ship to navigate it. With that, we'll open up the call for questions. Operator?
spk09: We will now begin the question and answer session. To ask the question, you may press star then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. During the question and answer session, we would ask for a limit of one question per person. At this time, we will pause momentarily to assemble our roster. The first question today comes from Matt McGinley with Needham. Please go ahead.
spk12: Thank you. I know that you had previously hoped that you could sustain a 50% gross margin rate or better, but this quarter you were a few points below that. What additional actions can you take to sustain or improve gross margin in 2023? And now that Illinois seems to be experiencing a more rapid pace of wholesale price compression, should we assume that the 23 rate will be lower than what you were able to achieve here in the fourth quarter?
spk15: Hey, Matt. This is Anthony. I'll take that one. Great question. Here's what I'll say. Number one, every quarter is different, and obviously no one likes to see the gross margin line go down. Two, while we do have some scale that we're still growing into on the CPG side of the business, we're not immune to the price impact that we're seeing in a number of these markets. And when you impact that, what makes the data somewhat murky is that we've got two things kind of happening on the price front. you've got folks that are trading down. So they're still buying an eighth of cannabis, but they're trading down. They're literally buying a less expensive kind of brand that may not be up to the same quality level. At the same time, you have true price compression where you have like products that are effectively priced less than they were called a quarter ago. So as we look ahead to the rest of the year, that's one of the things we're going to be watching pretty closely. We are doing a few things to combat it. And you saw what we did here in you know, within the fourth quarter. Number one, you know, gross margin isn't the only lever that we have within the business to kind of watch margins. So we're obviously closely watching the SG&A line. We are working hard to get more operationally efficient on the CPG side of the business. And at the end of the day, we're also, you know, we continue to look at the verticality that we're seeing within our markets to see if there's more that we can do on that front. At the end of the day, though, for us, it's all about cash flow. So while gross margin is a component of that, you know, we've got other tools in the toolbox that we're kind of utilizing to minimize the impact.
spk08: Thank you.
spk09: The next question comes from Pablo Zulanich with Cantor Fitzgerald. Please go ahead.
spk17: This is Matthew Baker on for Pablo. For our first question, we were wondering, what explains the steep drop in retail prices in Illinois since early December? From our view, it seems quite sudden, and we want to know if it's stabilizing or worsening. And then secondly, I was wondering if you could remind us of where you may have new capacity coming through or store ramp up in 2023. Thank you. All right, Matt.
spk15: This is Anthony. I'll take that one. So, you know, We're seeing some price impact in Illinois, but not to the extent that you're kind of alluding to. One of the things that could be happening is obviously with Missouri going adult use, that may be impacting a lot of the border stores there. But generally speaking, while we're seeing some compression, it's nothing that's as extreme as we've seen in other markets. Can you repeat your second question?
spk17: Yeah, just wondering if you could remind us of where you have new capacity coming through or store ramp up in 2023. Oh, sure.
spk15: Okay, so let's start on the retail side, which, you know, which I mentioned in my prepared remarks. You know, we've got a goal of opening approximately a mid-teen number of additional stores this year. And it's really, you know, across the following markets, Virginia, Pennsylvania, Minnesota, Nevada, and Florida. And then on the CPG side, we've got capital projects that have bled into this year from last year. But we've got a new facility in Virginia that will be operationalizing Minnesota. Our New York facility should turn on near the tail end of this year. We have additional New Jersey capacity coming online. And then we also have a small expansion taking place in Connecticut.
spk09: The next question comes from Eric Delorier with Craig Hellam Capital Group. Please go ahead.
spk03: Great. Thank you for taking my questions and congrats on the strong cost controls here in the quarter. My question is on these cost controls. So normalized operating expenses, as you guys called out, decreased pretty materially both in absolute terms and as a percentage of sales. You know, quite impressive considering the growth of your asset base and the of course, the inflationary environment as well. Do you feel that we've reached kind of a new base level of OPEX? Like, should we think of any of these normalized expense levels, you know, possibly coming down further in 23? I know you've mentioned some efforts around, you know, increasing efficiency around CPG. Just wondering how you feel on this sort of, you know, Q4 base level of normalized operating expenses. Thank you.
spk02: Sure. Thanks for the question, Eric. This is Matt. I can take that. So as a reference, we saw normalized operating costs in the 21% to 22% range for the past two years, and we expect that trend to continue. But at the same time, we also plan to keep a close eye on the spend to balance short-term profitability targets with long-term strategic objectives. So given the fixed costs that you operate with a number of retail locations, there's only so much of a floor you can hit, but we feel pretty good about where we are at and how we can maintain that level.
spk08: Thank you.
spk09: The next question comes from Spencer Honus with Wolf Research. Please go ahead.
spk14: Good afternoon. Thank you for taking the question. It looks like sales trends in 4Q came in a bit ahead of expectations. But can you talk about what you're seeing quarter to date from a sales perspective? And then I guess just taking a step back and thinking about the industry as a whole, what is the catalyst here for pricing to stabilize? And when do you think we could see some capacity exit the market here as they become increasingly capital constrained out there?
spk02: Thanks, Spencer. This is Matt. I can start off there. While we don't provide guidance, we know that seasonality is a factor, and we expect Q1 revenue to dip to the mid-dip from Q4 revenues by the big single digit. And Ben, do you want to take the... Sure.
spk05: Hey, Spencer. It's Ben. On capacity coming off or pricing stabilizing, I mean, you're starting to see it. on which market it's obviously a bottom-up decision and it starts with when the capital comes into the markets and we're able to really hone in on where where and how places like Massachusetts have experienced what they've experienced and what states we're looking at where we're putting capital and seeing what other capital is out there but I think the days of money tumbling in which creates a lot more supply which is what really creates the price deflation and some of these markets is oversupply and And we look out at markets where we're spending in, where we have a lot of confidence, given there's lack of a lot of new capital coming in. People are really digesting the tax penalties. Interest rates are 400 or 500, both spreads are up. So the cost of capital is higher, which gives us some confidence. Too early to call a bottom, but I would say we're studying the data, and we're not more worried than we were. So I think that's stabilizing.
spk14: Got it. Thank you.
spk09: The next question comes from Andrew Parsonow with Steeple. Please go ahead.
spk00: Good evening. Thanks for taking my questions, and congrats on the great cash generation this quarter. I have a two-part question and a little bit of a follow-on from the last question, thinking about working capital management and namely your inventory. Just wondering if you can talk to your inventory levels and how do you feel about your turnover? Do you see this as being a big source of cash in 2023? And for the second part, more about the environment that you operate in. Do you see any risk that other companies might be monetizing their inventories? And that could be a new source of price compression. And if so, which markets do you think are most at risk? Cognizant, you just mentioned that you're not really more worried than you were before about pricing.
spk08: I'll take the first part of that, Andrew.
spk02: So when we look at our inventory level, we feel pretty good about our inventory level. While inventory is up from last year, We still feel we're in a good position, and between the mix of our CPG inventory and retail inventory, monetizing that is not a significant concern of ours. We continue to turn the inventory at a consistent pace, and we expect to see that in the future.
spk15: And, Andrew, I'll take the second question just as it relates to you know, what's happening kind of in the world around us relative to, to kind of inventory levels and could that kind of further push pricing down? I mean, look, in 2022, we felt it pretty good. We felt it, you know, in Pennsylvania, Nevada, and Massachusetts. And in all three of those cases, I think it was a situation where you just had supplies with a greater demand that had built up over a period of time. For this year, PA seems like it's stabilized. So has Nevada and, Massachusetts, a little bit unclear. I also think that there's, you know, some of the activity that we're seeing in Florida, I think, is a driver of what you just described. I think a lot of the price compression we're seeing down there is, you know, there's a little bit of overbuilding and now there's kind of a resizing. Fortunately, when we look across our portfolio, you know, other places where it could pop up, we have some positive catalysts coming, right? So you look at a place like Maryland and That's probably a market where you have elevated inventory levels, but with adult use coming, that should hopefully absorb some of that inventory. We've certainly seen that happen in Connecticut, as well as some of the other markets that have launched over the last several years. But we're watching it close. Could that drive some further price compression? I think so, but unfortunately for us, it's limited to a few markets. and not as widespread as if we were totally operational within a number of the West Coast markets.
spk00: Thanks for that. I'll get back in the queue.
spk09: The next question comes from Aaron Gray with Alliance Global Partners. Please go ahead.
spk11: Hi. Good evening, Anna. Thank you for the question. Could you provide some color about your current relative pricing and brand mix amid the continued pricing pressure? Some detail on how you look at managing price gaps going forward and whether that might differ between your premium and value brands. You know, are you comfortable with the share capture you're getting right now from Anshai amid the trade down with constrained wallet or potentially looking to make some adjustments? Thank you.
spk05: Yeah, thanks, Aaron. Hey, it's Ben. I'll take it. You know, we like where we're at. We can improve. is sort of the short answer. And what I would say is we like Rhythm's positioning on premium. We think we have room to upgrade and continue with whether it's a reserve or various limited-time offerings that you'll see coming there on the high end in flower. We think we have some of the best flower in the game, and we know we can continue to do better. And we have a lot of things happening to drive that over, let's say, the next 6 to 18 months on the high end. On the value, we're studying this all the time, and in the biggest category like flower, you mentioned we love and shine. We have opportunity in good greens. And then we continue to parlay into the next category and the next category, whether it's pre-rolls, vape, concentrate, or edibles. And it's a very similar kind of analysis, understanding where the consumer is. You know, we have unbelievable proprietary data to see exactly what's happening on a daily basis with the consumer, and we use that to drive decisions on what to package and how to sell it and what price. So we're comfortable with where we are. We think we've got more upside to go.
spk08: Okay, great. Thanks for the comment.
spk09: The next question comes from Michael Lavery with Piper Sandler. Please go ahead.
spk18: Thank you. Good evening. It's clear that the supply and demand has been driving the pricing moves. Some of the oversupply, you can see at least maybe a faint light at the end of the tunnel, but ideally, it'd be a little more consistently driven by brand equity How far away is that from happening? You've got some of the brands that stand out a little bit relative to others. Maybe you've got a little better line of sight on what it takes for that to really carry more weight.
spk04: Sure. Thanks, Michael. It's Ben.
spk05: Keep in mind, this industry is in its nascent stage. We're under a decade. The idea of national marketing and national brands is really brand new. You're seeing Rhythm Flower or Incredibles with the best national distribution around. maybe a handful of other names in the entire sector. So we're able to see on a micro basis, state by state, able to take pricing power, which is really what a brand is, through that trust and through that platform to build that. And we think it just continues to grow. So I can't tell you in three years it's going to work, but we see over time the ability where the national marketing, the standards, and the brand develops that relationship with the consumer that drives the pricing. And then people are not just buying any old pre-roll because they don't know what stuff is in it, which is what we've seen out west and other places. They have the trust in Dogwater. They know it's not trim. They know what they're going to get. And we continue to invest in that kind of basic promise with the consumer. And I think if you look over time, you've been able to see that happen with some of the best brands. The key is for us is watching what others failed at and why things didn't work so well and, you know, trying to improve from there. So I think more brand equity to be developed and more scale in dollars spent on the brands that will show up in that. But we will revisit over the next medium term.
spk18: Okay, that's great. Thank you. Thank you.
spk09: The next question comes from Scott Fortune with Roth MKM. Please go ahead.
spk06: Good afternoon. Thanks for the questions. Real quick, looking at consumer demand, you mentioned the 28% year volume lift. Unpack that a little bit, you know, especially from your side, DTI, what you're seeing is the pricing compression helping penetrate the illicit consumer shift to the legal side. Just provide more of a little bit of color of that value demand side and consumer groups or demographics that really continue to drive that growth to offset the pricing compression we're seeing throughout the country here.
spk07: Hey, Scott, do you mind just maybe synthesizing that question a little bit?
spk15: You were a little muffled, so I just want to make sure we heard it right.
spk06: Yeah, I just wanted to unpack that volume list that BDSA has been calling out for 28% on the year. You think that's coming from a shift from the illicit side to the legal side, new consumers? Just kind of unpack the consumer side for the volume shift here.
spk15: Oh, that's a good – yeah, that's a very good question. I mean, look, I think the reality is it depends by market. Sure, I think that as prices continue to compress in a number of these markets, when you think and act like a consumer, why would you buy an untested, unregulated product if you can go to a store for the same price to get something that, at the very least, is tested by a third-party lab within a much more controlled environment? So I definitely think there's conversion from the legacy or unregulated market into the state licensed markets. You know, the other factor here is, you know, there's a whole host of other kind of macroeconomic factors that are showing up here. And again, it's really driven by, at least for our stores, where they are within the country. And then what are the macroeconomic kind of impacts that are happening in the markets where we're most prevalent? call it Pennsylvania, Illinois, and some of the mid-Atlantic states. So I think generally, though, the biggest driver is probably that kind of conversion to the legal marketplace. At the same time, I think there's also just more widespread acceptance. I mean, my guess is everybody on this phone has heard the term cannabis from their family members a lot more in the last three months than they ever did, call it, in the previous 12 to 18 months. So I think there are new consumers, new patients continue to enter our stores on a regular basis, and that's obviously also driving some of the growth.
spk08: Thanks for the color. Appreciate it.
spk09: The next question comes from John DeCoursey with CTIG. Please go ahead.
spk13: Hey, guys. One question that's pretty surprised that hadn't come up previously was Virginia expansion. You know, there's been some pretty pessimistic news out of the state over the last week. Are there any kind of changes to the planned spending environment there for you guys? And then similarly, you know, is there any kind of optimism that has come about in the last month or so out of other expansion states, mainly Pennsylvania and Minnesota?
spk15: Sure. John, this is Anthony. I'll take that one again. Look, Virginia, you know, we're all obviously aware of the news. does not look like adult use sales are going to go live in 2024. However, what I'll tell you is this. The medical program continues to evolve. The state continues to do a really nice job of opening up that program for the patients and simplifying the process of registration as well as access in general. We do have an expansion there. Obviously, if adult use was coming, we'd feel a lot better about it, but at the end of the day, You know, this is a phased expansion. So, you know, we built it such that it's prepped and ready to increase the capacity for the existing medical market. And then we've got, you know, two more stores that we plan to open there between now and the end of the year. You know, the other markets, Minnesota and Pennsylvania, you know, Minnesota is probably more further along than Pennsylvania. We'll see how that evolves through the end of legislative session. And then in Pennsylvania, you know, that's one we're watching closely. I know that a lot of us really are. and are involved with that. But right now, it's probably a little bit murky to kind of opine on what direction that's going to go and when.
spk13: Great. Thank you.
spk05: John, the only thing I would chime in is very hard for us to make capital investment decisions based on the political landscape or the political headline. Facilities take a year to build. The supply chain is tricky. So nothing about happening in Virginia really adjusts our bullishness on the demand from the people from Virginia. We think they're going to buy adult use. Which month, which year, it's unclear. Same thing with New York or Minnesota or PA. And we spent accordingly because we understand the net demand from the consumers. And across the country, that demand is coming true. The path is not straight. The headlines are contrary to where that's going often. But we're bullish on Virginia. We're bullish on Minnesota. And we're bullish on PA. And we think in 24 to 36 months, all three of those markets will be significantly bigger than they are today.
spk09: The next question comes from Matt Bottomley with Canaccord Genuity. Please go ahead.
spk16: Good evening, everyone. Just wanted to ask a question on Nevada specifically. You know, given some of the headwinds in that market, is there any other color you have on the dynamics of what's happening there? Is it simply just price compression like everywhere else? Are there changes in sort of tourism habits and people that go in and out of Las Vegas? How many times they're they're purchasing or the frequency of visit or potential basket size. And then as just a broader question, are there other markets you think that when you look at your portfolio, it might make sense to streamline them a little more? There's been some press releases from some of your peers that have done that, particularly on the West Coast. I'm just curious, as we're in 2023 now, if you think paring back asset exposure or CapEx in some of your non-core markets might make sense in the current environment.
spk15: Great, Matt. I'll take the first one. I mean, look, the Nevada market is It had a tough year. It was off 20%, went from effectively a billion dollars in 21 to, you know, mid-800s in 22. So, you know, for us, you know, we've seen a few things happen in that market. Price was one of the first places we saw severe kind of price erosion. It happened relatively quickly. It was right off the heels of COVID, you know, and it came fast and furious. You know, there is kind of a few other things happening in that market which are unique. You know, the tribes play a unique kind of role in that market that I think is having a bigger impact than anyone really kind of understands at this point. And at the same time, I wouldn't be surprised if there was a lot of product that continues to cross state lines from California into the state that is eroding kind of the, you know, the state licensed market. In terms of the second question, I don't know, Ben, you want to add?
spk05: Yeah, sure, Matt. I can hit it in terms of exiting markets. You know, it's funny. question that's really the answer to one of the prior questions about folks asking if you know what it's going to take I think as you've seen people exit you know like us people in the industry are out of money literally the cash is very tight not on our balance sheet but it's elsewhere so as you've seen people exit markets there was a relief amongst those operators that are very tight because as supply leaves as people shut down at least the pricing stability is sort of a better market for those that can survive So we're in the midst of it. You don't see Green Thumb leaving anywhere. We really like where we're at. We've built this portfolio in a calculated, really precise surgical manner, and we understand where we are in the distribution channels and who those consumers are, and we like sort of the upside embedded in this portfolio. It's driven all the decisions up until now. But we're constantly evaluating it, and we're not afraid to be wrong. So I like the question.
spk07: Thank you. Okay. Thanks, guys.
spk09: This concludes our question and answer session. I would like to turn the conference back over to Ben Kobler for any closing remarks.
spk04: Thank you. Thanks, everybody, for joining us, and look forward to updating you later this spring. Thank you.
spk09: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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