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Good day, and welcome to Green Thumb Industries' third quarter 2024 earnings conference call and webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. On today's call, management will provide prepared remarks, and then we will open up the call for your questions. To ask a question, analysts may press star and one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. And 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 Shay Capeless, Director of Communications at Green Thumb. Please go ahead.

Thank you, Betsy. Good afternoon, and welcome to Green Thumb's third quarter 2024 earnings call. I'm here today with founder and CEO, Ben Kozler, President Anthony Georgianis, and our Chief Financial Officer, Matt Faulkner. Today's discussion and response 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 Security and Exchange Commission and Canadian securities regulators. including the 2023 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 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 CDER filings. Please note, all financial information is provided in U.S. dollars unless otherwise indicated. Thanks, everyone. And now, here's Ben.

Thank you, Shay. Good afternoon, everyone, and thank you for joining our third quarter 2024 conference call. Now that the election is over, the good news for us is that Green Thumb is set up to win regardless of federal change. We've said that from the beginning, and we've built our business on that principle. We continue to execute as we have all along, staying focused on what we can control to grow our business, thinking in decades, not what may or may not happen over the next few years. Moving on to the business at hand, For the third quarter, our team delivered impressive results, including $287 million in revenue, adjusted EBITDA of $89 million, and $48 million in cash flow operations after paying $35 million in taxes. Our focus on cash flow and disciplined capital allocation has played a critical role in building trust and strong relationships in the banking community. As a result, in early September, we entered into a $150 million syndicated bank loan, a first-of-its-kind financing in the cannabis industry. It was an oversubscribed, non-brokered deal at an industry-leading rate of SOFR plus 5%, which, after today's 25-point interest rate cut, is about 9.5% cash interest. With the proceeds, we retired the $225 million in senior secured debt due in April 2025. The notes from this new financing don't mature until September of 2029. So in one action, we de-levered our balance sheet, maintained our cash interest expense, and added valuable duration, another five years to execute on our growth plan. Capital allocation has always been our North Star, and by now you know we're longtime fans of Warren Buffett and take his wisdom to heart. One of our favorite quotes is, quote, what is smart at one price is dumb at another. We think about that when putting precious capital to work in building our business. Price matters. It starts with our team having conviction that every dollar we spend can produce a tangible return and help scale our business. Our strategy has been to invest in cultivation and manufacturing as we launch retail stores. In the quarter, we opened four new dispensaries for a total of 98 locations nationwide. New RISE locations include East Syracuse, New York, two RISE dispensaries in Tallahassee, and one in Jacksonville, Florida. Just this morning, we announced our 99th store will be opening in Orlando, Florida, on Goodhomes Road. It's unfortunate that adult use did not pass on Tuesday. We believe our footprint in Florida is right-sized to its medical market, so the failed referendum on adult use is somewhat neutral to our business plan. That said, while frustrated we did hit the 60%, we continue to feel good about our opportunity in the state. Anthony will go into more detail on our CapEx plan and our exciting consumer package goods initiative. On a high level, we are intensely focused on building brand equity from our portfolio of outstanding products. I'm sure most of you know the world-famous Magnolia Bakery that has been a treasured New York institution for nearly 30 years with its beloved banana puddings, cakes, brownies, and cupcakes. Our initial collaboration with this iconic bakery in 2023 was a huge success, so both Magnolia and Green Thumb were thrilled to expand our partnership this October. This collaboration is just one example of how our brands are making a big splash in new and innovative ways, and how we expand access to our products through various distribution channels. It is a new world today, one where you can purchase Incredibles in person at Rye's dispensaries, online at IncrediblesHemp.shop, and even convenient same-day delivery, often within one hour through DoorDash. It's becoming easier than ever to access Green Thumb products for well-being, and this is just the beginning. We are excited by all the opportunity for our brands to reach even more consumers across the country. Accelerating that brand awareness continues to be one of our top priorities as we look to 2025. Rhythm, our highly acclaimed lifestyle brand and new partner to Barstool. Dog Walkers, America's favorite pre-roll brand. our ever-expanding line of Incredibles, and Bebo for the sophisticated cannabis experience, our top-rated brands, building reputations as mainstays in the cannabis industry and the American experience. Anthony will touch on this topic a bit further, but net-net, we light the path we are on. Our strong balance sheet is the key to having options and the ability to execute. And to protect our strong balance sheet, we have to pay our taxes to avoid incurring a significant tax liability under 280E, a heavy burden to the industry. Before I close, I want to reiterate what I've said time and time again, that the future is bright for Green Zone. We have a very productive asset base with a strong presence in many new and upcoming adult use markets. We love our balance sheet, especially with the recent debt refinancing, and we will continue to thoughtfully deploy capital into the business explore unique investment opportunities, and remain open to strategic M&A. Most importantly, we have the best team in the business to ride the green wave. This team puts their head down and executes, focusing on the mission of bringing high-quality cannabis products to Americans who need them now more than ever. I think it's safe to say that so many gummies were consumed while awaiting Tuesday night's election results, And that consumption is not slowing down. Now, I'll turn the call over to Anthony.

Thank you, Ben. As you just heard, the team delivered yet another incredibly strong quarter, building upon our year-to-date achievements with impressive financial and operating results. Let's take a look at some of the highlights. First, in Ohio on August 6th, we launched built-in sales at our five retail stores on Toledo Cultivation Production Facility. Since the launch, our retail stores have seen an approximate 2x lift in sales, consistent with initial expectations. Even better, on the wholesale side of our business, we are extremely encouraged by our market share gains from our branded products portfolio. We remain optimistic that as more stores open and adult use rates are finalized, more and more Buckeyes will shop for their cannabis within their own state, giving the Ohio program the chance to reach the full potential of its 13 million population. Second, we opened four new stores during the quarter, three in Florida and one in New York. During the quarter, we invested $18 million in CapEx, spread equally across our wholesale and retail businesses. Here today, our CapEx spend is around $55 million, and we expect to invest another $25 million in the fourth quarter, which would bring our total 2024 CapEx investment to approximately $80 million. For 2025, we expect CapEx to generally be in line with 2024 levels. Third, we continued our focus on getting our portfolio of brands in front of more Americans in the deep waves. During the quarter, we hosted our second annual Miracle and Mundelein concert that allowed for open cannabis consumption for all attendees and also formalized our relationship with the folks over at Barstool to deliver customized content across several of its highly followed channels. In addition, last month we expanded our partnership with Magnolia Bakery by collaboratively launching the Incredibles Banana Pudding Bar and Red Velvet Bar in New York, as well as offering a Farmville-compliant version for sale to customers 21 and older. These products are available in 25 states nationwide via incrediblehemp.shop and DoorDash for home delivery in several markets. As cannabis continues to become more and more mainstream, we anticipate continuing to find creative ways to introduce our brands to American consumers. Fourth, we continue to drive strong CPG performance across our fleet and increased our net CPG revenue by over 15% compared to Q3 of last year. As the retail environment has become more competitive, we have continued to drive strong CPG performance by focusing on flower quality, launching new SKUs, and growing our share of products on third-party shelves. We are especially proud of the share gains that we have seen to date in Pennsylvania, Ohio, New York, and New Jersey. As we look ahead to the balance of 2024 and into next year, our team remains focused on the following. First, continuing to optimize our business within each market. In addition to focusing on the consumer and on operational execution, this comes down to identifying which markets we can continue to underwrite strong returns and allocating our capital and resources accordingly. Tuesday's election results will influence our decision-making on this front. Second, becoming more efficient in our retail and wholesale businesses to optimize margins in a deteriorating pricing environment. To help achieve this, we've leaned into specific technology investments and automation to achieve greater retail throughput and production efficiency. And last, continued investment into our team and technology infrastructure to allow for continued scalable growth. This includes the ways in which our retail customers shop with us, along with how we fulfill wholesale orders to ourselves and third-party accounts. As you'll hear shortly, we are comfortable continuing to increase our SG&A spend given the anticipated reduction in taxes associated with rescheduling. With that, we'll turn the call over to Matt to review our financial results.

Thanks, Anthony, and hello, everyone. In the third quarter, we delivered $287 million in revenue, a 4% increase year-over-year. Revenue during the quarter benefited from increased consumer packaged goods sales, along with revenue generated from 13 incremental retail stores and adult use sales in Maryland, Ohio, and New York. Pricing continued its downward slide with year-over-year and sequential declines in most markets. Retail revenue came in essentially flat at a 0.3% increase versus the prior year period. Third quarter comparable sales decreased 2.7% compared to the third quarter last year on a base of 82 stores. price erosion continues. Growth profit for the third quarter was $148 million, or 51% of revenue, compared to $134 million, or 49% of revenue year-over-year. The increase in growth margin was primarily driven by operational leverage from the company's CPG business, along with lower costs associated with the purchase of retail inventory. Turning to OPEX, selling general administrative expenses for the third quarter or 31% of revenue last year. Global expenses increased primarily due to costs associated with ongoing claims and litigation, as well as compensation costs. SG&A excluded depreciation, amortization, one-time transaction costs, and stock-based comp, which we refer to as normalized operating costs, approximated $69 million compared to $59 million in the third quarter of last year. The increase year-over-year is mainly attributed to the 13th incremental retail stores. We believe in the power of brand building and will continue to invest in our brands, which will increase SG&A in the coming quarters. This could, in turn, push Adjusted EBITDA below our long-standing 30% target, which we're comfortable with, especially given the beneficial impact of income tax changes that will likely come in the near future. Q3 Adjusted EBITDA, which includes non-cash stock-based compensation and other non-operated costs, was $89 million for 31% of revenue, as compared to $83 million, or 30% of revenue, for the third quarter last year, with the increase driven by margin improvement. Third quarter net income was $9 million, or $0.04 per basic and diluted share during the quarter. This compares to net income of $11 million, or $0.05 per basic and diluted share reported last year. After closing out a $150 million five-year credit facility and retiring our existing $225 million senior secured note payable during the quarter, and ended the third quarter with cash of $174 million. Cash flow from operations for the nine months came in at $152 million after paying $88 million in income taxes this year. In summary, we are very pleased with our team's continued execution. We will continue to drive long-term growth while maintaining disciplined capital allocation. We thank our team and our shareholders for their trust and confidence and look forward to updating you on our next call. With that, I'll open the call to your questions. Operator?

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, 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. In the interest of time, we ask that you please limit yourself to one question. At this time, we will pause momentarily to assemble our roster. The first question today comes from Matt Bottomley with Canaccord Genuity. Please go ahead.

Good evening, everyone. Thanks for the time here. So I'm just wondering, when you look at the overall growth that you guys saw, just on the top line, it's a 2.4% or so, somewhat modest, I guess, as a number. But when you look at the overall macro dynamics in the sector, what some of your peers have reported, it's a pretty significant outperformance in the environment that we're in. So I'm just wondering if we can get a little more granularity How much of that is a bit step function in Ohio, considering that you guys started with five stores out of the gate? How much of that is more strategic in terms of maybe what markets you're deciding to accelerate in? Just trying to get an idea as the overall market seems to be flat but down in the quarter, and it just seems like a notable outlier in what we've seen so far this period.

Yeah, thanks, Matt. It's Ben. Hey, I think you bring up a good point. Look, I think the core explanation there is the team and the drive. we think we're really up to something special we really love the product and the brands that we're doing we look out we see green thumb up four percent year over year the industry up two and you know we do that as some modest market share gain and obviously we see what else is happening out there we feel those headwinds you know the price compression is real so to sell you know the price is down 20 you got to sell more units to equal the same revenue sometimes cost you more particularly at retail um So, you know, the results are not one thing. Obviously, Ohio is nice. Maybe not as nice as everybody thought, but it's good. And certainly there's a lot of people in Ohio. We think it will continue to grow, especially as the operators optimize what's happening there. But there's not any one answer to that. I mean, it's a grind. And as you see out there, you see what's going on. This is hard work. And the team somewhat makes it look easy because we keep putting up the right numbers. But it's not a single unlock. So we're proud of the four versus two, which is kind of the language we speak. And we want to keep driving that.

Is there any market you can point to specifically that's better than your expectations, you know, from the standpoint of where we were when we were chatting a quarter ago compared to, you know, what occurred in the quarter?

Yeah, so Matt Anthony here. I'll take that question. Yeah, look, we've seen nice CP2 gains. I talked about it in my prepared remarks, but we've seen nice share gains in a few markets, you know, New Jersey, Ohio, Pennsylvania, New York. And that certainly kind of helped with the increase. And I talked also about the 15% kind of year-over-year kind of growth on a net basis on the wholesale side. And so, you know, we're really leaning into those markets. We spent big kind of leading up to this year in a few of them, which kind of gave us really the biomass to go ahead and attack. And so we're doing that as we speak.

Okay. I'll leave it there. Thanks, all. Thanks, Matt.

The next question comes from Aaron Gray with Alliance Global Partners. Please go ahead.

Hi, good evening, and thank you for the question. So I wanted to stay online a little bit with, you know, the wholesale trends. Doing a nice job there. Wholesale mix, at least as you look at it, net has been increasing for you guys the past four quarters now. So, you know, wanted to ask in terms of maybe, you know, longer-term targets that you're seeing now for wholesale versus retail, something that we used to speak a little bit more about a couple years ago. And then as we think about the growth opportunities in wholesale, you know, there's been some competition, some conversation about the broader competitive environment, struggles of certain operators potentially limiting some of the wholesale opportunities. So just how you're thinking about, you know, credit to third-party, you know, wholesalers and how that could impact growth opportunities there. Thanks.

Yeah, thanks, Aaron. Ben, I can take that. I mean, what really drives the wholesale growth, obviously it's good products, good brands, good positioning, great teams. but it's continuing to invest in the business and that capex. Combine that with a team that focuses on innovation and understanding where the ball is going and not where it's been, because trends change, whether it's the value consumer or the premium consumer or the bulk buy or the specials or how to handle holidays. And we've been at the game a while, so we can kind of crank it. But I think what drives the wholesale business and where we feel just very confident about are the dollars we put in over the last, you know, three plus or minus years, you know, two to four or five years, that is producing nice results into a business that we really like. And that makes it, you know, a pretty good game to play as we go. I think the second part of your question was, oh, yeah, good relationships with the trade. When people are out of money, they behave irrationally. And, you know, expect the unexpected in that kind of case. And that's not undocumented in any industry in anything. And obviously it's not fun when people don't pay you. So I don't know what else to say about that, but we've managed to do a great job. Matt and his team keep it tight. But the good news for us is there's a high velocity on the product. And so without the product on the shelf, you start to think the retail store doesn't feel as good about their offer. And so we can leverage that with Rhythm of Flower and other things that are happening in business and celebrity and tie-ins with marketing in order to drive the collectibles.

Okay, great. Thanks. I'll jump back in the queue.

The next question comes from Pablo Zuanek with Zuanek and Associates. Please go ahead.

Thank you. Ben, I'm going to ask two questions. The first one, do you see potential opportunities for what I would call a backdoor listing? In the past, you talked about Boston Beer. Recently, you had this transaction with Agrify that maybe you want to clarify, but that could be a possibility. I mean, is there room in the current regulatory environment, if at all, room for a backdoor listing to get you in NASDAQ? Or that's just out of the question. And then the second question I'll ask you right away, we can all debate the growth opportunities in the U.S., right, especially now that Florida is not going ahead. But, of course, you have Minnesota, PA, Virginia down the road. But, you know, other companies perhaps, and maybe yourselves, could be looking at other businesses, right? Can you get bigger or enter hemp-infused derivatives in a big way? Can you start investing overseas or that will make sense for you? If you can comment on those two questions. Thank you. Sure. I guess I'll take it, Pablo.

You know, I don't even think I understand what you mean by a, quote, backdoor listing. So I'm not even sure. Over the years, there's been a lot of different kinds of conversations that have occurred, TSX and ring fence and other sorts of things that you know about. We're opportunistic investors, you know, at the core. And, you know, we get paid for capital allocation and how those returns manifest. So in the second part of your question is essentially what's in your playbook. And the answer is we really don't want to share what's in the playbook. What I can tell you is that we are very focused on how we allocate capital and what that's going to produce for investors. So obviously we see what's happening in Europe. We see what's happening with input product. We understand the cannabis compounds in-depthly, and we can think as the consumer. And we talked about it before, you know, the empathy with the consumer is the time machine forward to understand what's going to happen in this industry. And that's just really how we're investing and where we're playing. So we think it's an exciting time. Obviously, it's a tricky time with the industry taking a major step back in terms of valuations this week, but there's really no change around here. It's head down and execute the whole time. We like where the business is, and we think whether it's in the short, medium, or long term, the market rewards the heaviest weight. We don't really care about the short-term voting. We want to take advantage of that. It's simply a sell high and buy low, which is really what we're doing, and we want to continue to execute. In terms of like where it was at, I think like $30 billion, $31 billion in run rates, record highs the last quarter across the U.S. We have a lot of confidence that has at least a double in it, at least. And so really we love where we're at. We love the consumer. We think the U.S. is in a very good spot. And obviously the federal government has its own issues, which we can hit at another time. All right. Got it. Thank you. Thank you. Thanks, Pablo.

Again, if you would like to ask a question, please press star then 1. The next question comes from Mike Reagan with Excelsior Equities. Please go ahead. Hey, thanks for taking the question.

Quick question on when you talked about the EBITDA guidance, and I apologize about the airport so you can hear them announcing my gate. But in terms of sort of taking it down and noting that 280E taxes will hopefully go away soon, I guess, how do you typically think about sort of the reinvestment of, you know, those 280E taxes, which, you know, they're roughly 11% of revenue for most operators. Yeah, how do you think about if that goes away, hopefully next year, how those taxes will be reallocated? Thanks.

Yeah, thanks. No problem. We heard you about the 280E tax, how to reallocate the cash. I don't think we think about it exactly like that. I think we think, what's the best use of our capital? What's the capital going to be? And so what Matt says, we have, you know, patience or we're okay with a smaller EBITDA margin as we have confidence that tax relief is going to come. So we're always just thinking about net pre-cash flow. And we think now there's an amazing opportunity to invest in these brands. We've talked about it. We think find your rhythm is real. We know dog walkers are real. Bevo, Incredibles. So we want to put our money where our mouth is and invest behind them, especially on the heels or the cusp of potential tax regime change. So that's really how we look at it versus like what to do with this extra dollars. It's sort of what we're

In terms of how you allocate capital, clearly historically you've been very thoughtful and pretty effective at it. I guess in terms of Agrify, you were interested in some of their technology. Is that more the precision and cascade extraction business or more the grow pods? I mean, you seem to be pretty good at growing cannabis without their technology at this point. Or is it just sort of using that technology equity is a shell for something else, you know, other new technologies or other businesses that are not plant-touching. Thanks.

Sure, thanks. I can take it again, Ben. Let's see, we really don't comment, like I said, to Pablo, but I can give you, you know, a hint. I think you're right. You know, if the fork in the road is extraction or cultivation, we like the extraction business. The position has done a great job. We understand its position in the market. It's a great team out there, and we respect what they've built. And we want to be opportunistic about what is possible. Every day the world is changing, and it's a bummer to get left behind in whatever ways you want to think about the analogy. But we don't want that to be us. So we've played the game with a lot of optionality. We've talked about opportunistic investing. We've used the buyback. We've used banks. We've used offerings. And I would continue to think about us as being strategic in our capital allocation. I'm not saying it's different here. uh and we know you know for lack of a better way to say the dab game is real the high-end dabs is a real segment in this market that has pricing power among a very very loyal consumer base and so if you think about scaling that business and what you would do you know it might make sense to be a little smarter or closer to various pieces of it yeah great thanks a lot

The next question comes from Howard Penny with HedgeEyes. Please go ahead.

Thanks for the question. Ben, you mentioned it's still day one. As you enter the second decade as a company, what specific aspects of the cannabis industry make you believe that it's still early stages, and how does that impact your investment and operational decisions in 2025?

That's a great question. Thanks, Howard. I mean, you know, so many things. One, nobody's really heard of Rhythm. It sucks, but it's true. So it's day one to figure out how to get that to change. You know, the opportunity to buy Incredibles, like I talked about in the prepared remarks, has totally changed within the last number of days, not months. And that changes things. And quite frankly, still walking down the street in any city, you know, half an hour before closing, a last call is ugly and unpleasant. And we think the future is different. So we see headwinds and alcohol, the material nature. And we see a $30 billion industry where we have won and changed, so call it, 3% to 4% of total space if you mark up the wholesale to retail, which no industry of that size is that fragmented. We understand the regulatory landscape, and we're ready to play offense because we spent $500 million in CapEx over the last X years, and it doesn't look the same going forward. So every time it doesn't look the same, it's like, new day. What do we do today? So we're big into the whiteboard, seeing white paper a problem and figure out a solution, and now we've got a lot of capital to play offense. We have a great business producing cash. We have an amazing team. And so we're just excited in the morning. We use that day one Bezos style around here to kind of fire ourselves up. And, you know, that's what that means. Thanks. Sure.

This concludes our question and answer session. I would like to turn the call back over for closing remarks.

Sure. Thanks, everybody, for joining. Have a happy, healthy holiday, a little extra compassion as we go through everything that's happening over the next few months, and we'll talk to you in about 90 days. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.