8/8/2023

speaker
Betsy
Call Operator / Moderator

Good afternoon and welcome to Green Thumb's second quarter 2023 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 Thumb's 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.

speaker
Shannon Weaver
Vice President of Communications

Thank you, Betsy. Good afternoon, and welcome to Greensum's second quarter 2023 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 2022 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. 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 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 and CEO

Thank you, Shannon. Good afternoon, everyone, and thank you for joining our second quarter 2023 conference call. 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 we'll open the call to questions. Reflecting on the cannabis industry and the economy as a whole, not much has changed since our last call. Inflation continues to dampen consumer spending, pricing pressure is still with us, and there has not been any meaningful action on the federal front. So, given the environment, we feel pretty good about our second quarter performance. We posted $252 million in revenue, which was up slightly from the first quarter, and kept us on pace to exceed another $1 billion in revenue for the full year of 2023. GAAP net income was $13 million, or $0.05 per basic and diluted share in the quarter. Adjusted EBITDA was $76 million, or 30% of revenue. For the quarter, cash flow from operations was $18 million after paying Uncle Sam $52 million. Importantly, six months' cash flow from operations was $93 million, up from $40 million in the comparable six-month period of 2022. This cash flow gives us the confidence to continue to play offense as we ended the quarter with a strong balance sheet and $149 million in cash. We believe our cash flow generation, coupled with a strong balance sheet, is one of our most significant competitive advantages. Right now, expensive capital is a problem for most industries, but it is especially deadly for the cannabis sector, which is blocked from traditional capital sources and saddled with a punitive tax structure. At Green Thumb, we have been able to navigate a path to profitability while remaining fiscally strong since our founding. Our intense focus on generating cash and investing and spending it like it's coming from our own pockets has been our team's not-so-secret secret sauce. This gives us the ability to execute our long-term growth strategy in a patient and deliberate manner. We not only sleep well at night, but we also wake up early, excited about the opportunity in front of us. And there's a lot to be excited about. This quarter, we opened six new Rye stores in New Hope, Minnesota, Grove City and Philadelphia, Pennsylvania, Bristol and Danville in Virginia, and Las Vegas, Nevada. Now we are in an even better position to expand our brand awareness in these key markets. Opening new stores is a challenging process with timelines that are hard to predict, and we are proud of our team for their tenacity on this front. We now have a total of 84 locations supported by 18 manufacturing facilities, and we plan to open several more stores this year. This is all part of our long-term strategy that continues to unfold, which includes building brands that resonate with Americans. We see these lifestyle aspirational brands as key to our long-term growth. Over the last 12 months, we have made capital investments of approximately $240 million to position ourselves to grow. This all plays out against our original strategy to enter open-end scale with disciplined capital allocation. We are also excited about the July 1 commencement of adult use sales in Maryland, where we have four dispensaries and a healthy wholesale business. If Maryland follows the pattern of adult use sales in other states, there should be a nice lift in that market. We have made real progress in the quarter in executing our growth strategy and have a long runway of opportunity ahead. Legal U.S. cannabis sales in the U.S. is now a $28 billion industry growing to an estimated $75 billion over the next decade. Now, that's a new record with regulated sales accounting for over $7 billion in the second quarter. But it's very important to note that that number does not include the sizeable gray market of untested, unregulated products such as Delta-8 and hemp-derived THC. And if you're curious what I'm talking about, take a walk in Lower Manhattan. Despite that, our 15 operating states are among the most attractive in the nation and offer access to 50% of the US population. So we believe we are in a terrific position to keep growing profitably and sustainably. While there are very few sectors with outlooks as compelling as cannabis, there's no denying that the industry is going through growing pains right now. The tide continues to recede. For some time now, I've stopped speculating on what government officials, many of whom have passed their expiration dates, will do to lift punitive taxes and make some headway on safe banking practices or let us list on a U.S. exchange. I've stopped trying to predict when some states, notably New York, will get their cannabis program in working order. All I can say is that we stand on our record for clear, not wishful thinking, and feel good knowing our business is positioned to withstand old guard politicians who have failed to facilitate needed action in cannabis reform. Above all, we never lose sight of our mission to provide consumers with safe, high-quality products that improve their well-being and help them live more comfortably in this ever-chaotic world. Along the same line, we will never stop advocating for justice for the many people who have suffered from the failed war on drugs. You may not be familiar with the case of Alan Russell, but Mr. Russell is currently serving a life sentence with no parole in Mississippi for his possession of 1.5 ounces of cannabis. That's an amount we sell every day legally in our stores across the country. He is just one of the estimated 40,000 Americans who today are incarcerated for cannabis offenses, even as state after state legalizes its use. And the damage that this causes extends far beyond the person in prison. It affects their families and their communities, many of which are black and brown. So our Green Thumb team will never stop focusing our efforts on this devastating injustice. Now, I'll turn the call over to Anthony for his thoughts on the second quarter.

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.

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