Marimed Inc

Good morning. My name is Jordan, and I'll be assigned your conference operator today. At this time, I'd like to welcome everyone to the Merrimet Inc. Third Quarter 2025 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star and then the number one on your telephone keypad. If you'd like to withdraw your question, please press pound key, followed by the number one. Thank you. I would now like to turn the call over to Mr. Howard Satcher, Chief Communications Officer, to begin the conference.

Hello and good morning, everyone. My name is Anna Massanari, Associate Director of Trade and Field Marketing at Merrimid. I'm very proud of the contributions my team has made in supporting sales, market share expansion, and strengthening industry relationships for the company. We literally hit the ground running every day visiting wholesale accounts to educate bud senders about our products, engaging with consumers at hundreds of brand pop-ups, and representing the company at important trades events. I'm honored to kick off today's 2025 third quarter earnings call. Joining the call today are John Levine, our Chief Executive Officer, Ryan Crandall, our Chief Commercial Officer, and Mario Pino, our Chief Financial Officer. This call will be archived on our Investor Relations website and contains forward-looking statements. Actual events or results may differ materially from these forward-looking statements and are subject to various risks and uncertainties. A discussion of some of these risks is in our risk factor sections of our 10-K and 10-Qs available on our website. Any forward-looking statements reflect management's expectations as of today. We assume no obligations to update them unless required by law. Additionally, we will refer to certain non-GAAP financial measures which are reconciled in our earnings release. I will now turn the call over to John for his third quarter overview.

Thank you, Anna. Good morning, everyone.

Thank you for joining us for today's third quarter 2025 earnings call. Last night, we reported earnings reflecting sequential growth in both wholesale and retail revenue. We also achieved a sequential increase in EBITDA and positive cash flow from operations. We continue to grow the business and maintain a healthy balance sheet despite the ongoing challenges of our industry has been dealing with. These include price pressure, retail oversaturation, and continued lack of clarity on rescheduling. Additionally, our brands maintain significant share across our core markets during the quarter. At the same time, we're leveraging a number of catalysts to fuel future growth and brand expansion. In short, our plan to own top-selling national CPG cannabis brands is on track. We had a particularly strong quarter of wholesale sales with Illinois and Massachusetts leading the way. In Illinois, we increased sales sequentially by 23%. despite sales being down statewide 1.5%, according to Hoodie. In Massachusetts, we increased sales 5% sequentially, despite a 2% decline per state, according to Hoodie. Those results speak to the strength and consistency of our branch, particularly in Illinois, where they only hit the market early last year. Delaware was another strong performer for us. We spent months preparing for adult-use sales starting on August 1st, and it paid off. As the largest producer in the state, we expect to continue growing wholesale revenue in Delaware as more dispensaries open their doors over the next year. Our two stores in the market also perform well, delivering on Thrive Promises, of exceptional customer service to both our new adult customers and our longtime loyal patients. Turning to retail, as you know, cannabis sales in the largest MSO markets were roughly flat quarter over quarter, despite market and industry trends. We still managed to record a slight increase in retail revenue. We see the market forces that impacted the retail consumer in Q3 continuing through Q4. Fortunately, early last year, we saw the trend coming that would impact cannabis retail. That's when we shifted our strategic plan and placed an increased focus on expanding our brand distribution. Missouri is another example where we put our agility and financial discipline to work. On last quarter's call, we shared that the market changed after we went and entered it. We decided to leave the market and invest our time and money in more profitable opportunities. We're also continuing to improve profitability through a company-wide effort to ensure we operate as efficiently as possible. As a result, OpEx was flat, sequentially and down 4% year over year. I'm proud of our team's ability to reduce costs without sacrificing product quality or delivering an exceptional customer experience at our stores. Looking ahead, our strategic plan will continue to focus heavily on expand the brand strategy. As a reminder, our goal is to own top-selling national brands by 2030. There are two primary pillars to the plan. First is to continue growing our wholesale business in existing states. That means opening new accounts as well as going deeper in existing accounts. I'm very pleased with our success with this pillar so far. Second, we must get our brands into new high-growth states. The plan there is underway and involves a mix of licensing partnerships and M&A. I'm also excited about our entry into hemp, which we announced earlier this week, and how it fits into our expand the brand strategy. During the third quarter, we commence management of TILT's cultivation and processing facility in Pennsylvania. We expect to unlock the true value of our deal with TILT when our licensing agreement allows us to introduce our product throughout the state next year. With adult use a matter of when, not if, we expect Pennsylvania to be a major part of a very strong brand distribution footprint throughout the Northeast. That footprint will now also include New York. We announced a new licensing partnership a few weeks ago that will bring our products to a state that's reported to have a $6 billion total addressable market. Additionally, on the licensing front, earlier in the quarter, we announced an agreement with a new main partner for distribution of Betty's Eddies to both adult, youth, and medical customers in one of the largest tourism markets in the U.S. The partnership is progressing well with our products available to consumers beginning last month. That brings me to hemp. We've decided the time is right to seize the opportunity that hemp THC provides us to expand the distribution of our brands and increase household penetration. We've been closely monitoring the space and the 2018 Farm Bill continues to present an opportunity. It's our belief that even if the bill is amended in the future, there's a strong likelihood there will be a car boat for products like beverages. Target, Circle K, and Total Wine certainly appear to feel the same way based on their entrance into the space. According to BDSA, hemp beverages alone generated $3.3 billion in 2024 and is projected to nearly double by 2029. This week, we announced several partnerships that established a strong supply chain that we believe positions us to succeed in hemp. The partners we've chosen represent leaders in their respective disciplines. Our manufacturing partner, Dehydrate, owns some of the best technology for rapid onset and shelf facility in the industry. Our marketing partner, Countermeasures, is known for its efforts to launch brands including Poppy and Kendall Jenner's 818 Tequila. Our first commercial product will be a hemp-based THC version of Vibations that will launch in Rhode Island by early in the first quarter of 2026. Rhode Island made sense because it's right in our backyard and is a manageable state to test in before we go wide with distribution. At the same time, we're working on additional distribution contracts other markets that we expect to announce soon. In summary, we've got a focused go-forward plan that we are actively implementing to expand distribution of our brands to the masses and fuel long-term growth.

With that, let me hand it to Ryan. Thanks, John, and good morning, everyone.

Let me add color to some of the revenue highlights that John shared with you. We're pleased with the continued growth of wholesale, where sales increased by 5% quarter over quarter. Wholesale now accounts for 44% of our product revenue, up from 43% last quarter. That's an important metric for us because it confirms that our expand the brand strategy is working. Part of expand the brand is to continue to shift our product revenue mix to wholesale. And we're doing it at a time when wholesale price pressure has never been more challenging. Many operators are racing to the bottom, slashing their price in an effort to stay competitive. Generally speaking, we've been able to maintain premium-level pricing on most of our products while continuing to open new accounts and grow our existing business. At the close of the quarter, we had achieved 75% penetration across all of our markets, excluding Missouri, so there's still plenty of opportunity to continue growing wholesales. I've said on previous calls that a key KPI we look at with respect to brand strength is market share. In the third quarter, our brands continued to grow or maintain their high market share in all our core markets. Betty's Eddies continues to be among the top-selling edibles across Massachusetts, Maryland, Delaware, and Illinois. Vibations and Nature's Heritage remain in the top 10 among beverages and pre-rolls across all those states, respectively. Helping drive our wholesale performance is the close collaboration of our sales, brand marketing, and trade marketing teams every day. I was thrilled Anna joined our call earlier. Her field marketing team's contribution to our success can't be emphasized enough. During the third quarter, our brand ambassadors implemented close to 3,000 consumer and trade activations and directly engaged with approximately 18,000 consumers. The number of activations reflect an increase of 23% quarter on quarter and 86% year over year. Most important, we're able to see the direct connection between our one-to-one engagement and new sales generated as a result. We believe our field team helped contribute nearly 2 million in sales at third-party stores in the quarter, representing a 68% increase quarter on quarter and 140% increase year on year. Before turning to our retail channel, I want to share an important update on our relationship with Tilt's team in Pennsylvania. I'm pleased to say it's off to a solid start. As John said, the real value of that relationship will be unlocked when we start distributing our brands in Pennsylvania. Until then, we're doing everything we can to support Tilt's sales team. So far, our strong relationships with MSOs and other markets have enabled us to both strengthen and open wholesale accounts for Tilt during the quarter. As for retail, John painted the picture of what's happening across the industry. We're continuing to implement a variety of pricing, marketing, and operations strategies to defend our turf against new stores that have opened in our core markets. Transactions across our 13 stores were up quarter over quarter by 6%. That includes every one of our dispensaries in Massachusetts, Maryland, Ohio, and Delaware. Our Thrive Perks loyalty program continues to be critical to that effort and is working to keep consumers coming back to our stores. Last quarter, we grew active membership by 7% across all our markets. Looking ahead, wholesale revenue growth remains a significant opportunity for us in terms of organic growth. Consumers love our brands, and we are laser-focused on expanding their availability by opening new accounts and expanding existing accounts. Additionally, I'm excited about our strategic cannabis partnerships and entering the hemp space. These initiatives will further open more doors and expand our brands, while, of course, driving revenue and helping to diversify our revenue streams.

I'll now turn the call over to Mario to review our financial results.

Thank you, Ryan, and good morning, everyone. Last night, we reported third-quarter consolidated revenue of $40.8 million, representing an increase of 3% sequentially and higher year-over-year by 400 basis points. The quarter-over-quarter growth was primarily driven by a gain at wholesale and a marginal increase at retail, even as the broader industry continues to navigate pricing pressure and increased competition. Starting with wholesale, wholesale revenue grew 5% sequentially and 11% compared to the same period last year. Ryan mentioned the shift in our revenue mix, whereby our wholesale revenue now represents approximately 44% of our aggregate product revenue. This shift in revenue mix demonstrates the effectiveness of our expand the brand strategy. As we continue to scale branded product sales through deeper wholesale penetration and strong account growth, we expect wholesale to become an even larger portion of our overall revenue mix. While wholesale margins are lower than retail margins, This shift is margin stabilizing in the current environment where retail is experiencing increased pricing pressure and margin compression. As a result, the growing contribution of wholesale provides a more predictable and scalable platform for long-term growth and profitability. Now turning to our retail revenue. Our retail revenue increased 1.1% sequentially and declined 3% year-on-year. Across our retail markets, we continue to outperform local average order value benchmarks despite industry-wide pricing pressures, reflecting strong brand affinity and a loyal customer base. While Illinois saw pressure on both traffic and AOV, we're actively implementing strategies to defend share and improve basket composition. With two full quarters of Delaware operations behind us, we are very pleased with the performance we are seeing in the state. Retail revenue grew almost 48% sequentially. This strong performance was driven by increased adult use traffic, broader product availability, and successful brand activation in the market. That said, the overall growth in Delaware was partially offset by continued headwinds in our Metropolis dispensary in Illinois, where two new stores opened up close in proximity to ours. Metropolis remains our largest store, but the competitive landscape dynamic has impacted both traffic and AOV. The year-over-year retail revenue decline was largely attributable to reduced performance at our Metropolis dispensary. Excluding the impact of Metropolis, retail revenue increased approximately 18% year-on-year due to the continued scaling of our Quincy dispensary our new Tiffin and Upper Marlboro dispensaries, along with contributions from our two new Delaware dispensaries. Non-GAAP adjusted gross margin for the third quarter was 41.4%, down 400 basis points quarter on quarter, and down 1.2% year on year. The sequential increase in wholesale revenue as a share of total revenue contributed to this decline. On a GAAP basis, the company generated a net loss of $2.9 million during the quarter. This compares to a net loss of $1.4 million that we reported last quarter and a net loss of $1 million in the same period last year. The increase in the loss sequentially was due to higher income tax compared to the last quarter, where we had a benefit of reversing a reserve on prior year's tax returns. The increase year on year is due to higher 280E non-deductible expenses in the current quarter. Total operating expenses for the third quarter were 14.8 million or 36% of revenue compared to 14.9 million or 38% of revenue in the previous quarter. Total operating expenses were 15.4 million or 38% of revenue in the same period last year. The sequential and annual decreases reflect the impact of our continued cost discipline. Adjusted EBITDA in the third quarter was $5.1 million, an increase of $459,000 year on year, and an increase of $352,000 sequentially. The improvement was primarily driven by scaling operations in Delaware and continued cost discipline across the business. Turning to the balance sheet and cash flow. We maintained a strong balance sheet in the third quarter, ending with $6.6 million in cash and cash equivalents, up from $6.1 million as at the end of the last quarter. And our operating working capital was $38.2 million at the end of September. We had no significant capital expenditures during the quarter and don't expect major cash outlays for the balance of the year. We generated $2.7 million in cash flow from operations consistent with the same period last year and a significant increase from $297,000 in the second quarter. This improvement was primarily driven by working capital contributions from Delaware where inventory that was built up ahead of the adult use launch in Q2 was successfully converted into sales in Q3. That concludes our financial review. I will now turn the call over to John for his concluding remarks.

Thank you, Mario. Before opening the line to questions, I want to thank our investors for their continued support and our team for their hard work and dedication. They are the creme de la creme, and I am very fortunate to call them my teammates.

Operator, you can now open the line

As a reminder, to ask a question, press Start 1 on your telephone keypad. Your first question comes from the line of Andrew Semple from Ventum Financial. Your line is live.

Great. Good morning. Thanks for taking my questions here. First question, given the increased focus on licensing deals and using that to get the brands into new markets, would you be able to share – kind of the economics we'd be expecting to see on those licensing deals, how those work, and how that flows back to Merrimed. Any color you give on that would be appreciated.

Good morning, Andrew. Thank you for joining us this morning. Very good question. Our licensing deals are a percentage of the revenue that the deals are making. We are mixing them up with some other ones where we're getting closer to the top line, but there's a lot of them that are percentages of the revenue that they sell on the wholesale basis. The big item is really to get our brand recognition and name out into as many markets as possible. And with those percentages, there is no cost associated on our side, so it's really a better margin for us, kind of like the management fees. So we see growth through those licensing deals to make the value of a our brands even larger as we move forward.

That's great. And maybe I'll pick up on that margin bit there. A bit surprised to see margin down a bit, queue on queue, just given, you know, the uptick, the slight uptick we saw, I guess, this quarter in kind of those management revenues, which are higher margin, but more substantially from the investments made in the cultivation production side of things, you know, should have given Miramed some opportunity for some margin improvement this quarter as you drive vertically integrated sales in key states. Maybe you could just touch on the margins, what you saw this quarter, what impacted margins. I suspect pricing pressures were an issue. But if there's anything else besides that that could have weighed on margins. And perhaps you're looking for margins next year.

Yeah. Hi, Andrew. It's Mario here. Yeah, you're exactly right. We did see some compression in our margins, mostly because we were aggressive on discounting in order to protect share. We also did change the accounting for our loyalty program, and that resulted in some deferral of revenue in the quarter that we haven't done in the past. That will be a timing difference, so we'll see that come in in future quarters as those points are redeemed. So we believe that's a one-time marginal hit to our margins this quarter. And looking forward, we anticipate margins to stay stable in Q4, and we'll see some slight expansion into the new year as some of the efficiencies that we've implemented and is already delivering some margin improvements, we'll be able to leverage those in the new year.

That's great. That's helpful. And maybe one more, if I may, just the decision on exiting the Missouri market. Maybe just looking for some additional color behind that. And also, if there's any liabilities associated with exiting that market.

Andrew, John Levine again. Thank you very much. Yes, as I said last quarter, we were planning on taking a hard look at Missouri, and we have determined that it was easier to leave the market as we weren't getting to the cash flow that we were looking for quickly, and we want to focus our time and effort on markets that we can get better cash flow and results at a quicker pace. So there will be a one-time offset, but all those expenses have already been pretty much on our books, so we may have to just do a minor accounting in Q4, but I don't see it being a very large number. Mario?

Yeah, just to add on that, as John says, we will be booking a loss. We're in the process of determining that. We don't expect any further liabilities related to this closure that are not already recorded in our financial statements. Uh, and, uh, it's, uh, the loss will be a non cash loss and, uh, we'll also see improvement on our, uh, cash going forward to the tune about of 120 a month.

That's helpful color. Thanks. Appreciate you taking my questions and I'll get back into the queue. Your next question comes from the line of Joe Gomez from Noble Capital Markets. Your line is live.

Good morning. Thanks for taking the questions. I wanted to follow up on some of the licensing deals and the economics. And I think you mentioned it's a great way to get out into as many markets as possible. And most of them are right now just a percentage of revenue sold. Any concerns about kind of, you know, losing control, so to speak, of the product, of the end product, whether it be quality or other ways, given these licensing deals? Joe, this is Ryan.

Thank you for the question. Yeah, I mean, it sounds like you're talking out of my own head. You know, we're very... We look at our partners. We really make sure that we have the right partner, and we go through a robust process on the kind of pre-sale end of landing any one of these license agreements. This isn't our first rodeo. We've been in the space for a while. Early on, we had a lot of partnerships that weren't necessarily the best. I think the partnerships that we're forging today are very well-qualified. We know what we're looking for in people. I think they know what they're looking for as well. And I think we do a great job of obfuscating some of our IP and really making sure that our partners are committed to protecting our IP, both with their own employees and really kind of further on in the future. Okay.

And then... John, it's more kind of big picture question here, and then kind of two related ones here. I'm sure you guys know there's the recall efforts in Massachusetts. You know, I'd like to hear your views on that and whether that type of effort could possibly gain momentum in other states. And the second one of that is, you know, If we look at the business itself, and you mentioned it, you know, in your remarks, in the pricing pressure, the retail oversaturation, the lack of clarity at the federal level, I mean, this has now been going on multiple years. What is going to happen to change that firms in this business can start seeing strong top line growth, strong margins, and not always be looking at having to run programs in order to maintain market share. So just kind of looking for your thoughts on those two topics.

Thank you, Joe, and good morning.

Some very interesting questions you brought up there. First of all, the Massachusetts recall, I don't see that really going anywhere. The whole group that we talked to and the politicians we're talking to, it just doesn't really make a lot of sense. I know that there's a lot of conversation about the hemp bills in all the states, and Massachusetts does have hemp laws, which, again, I'd say are not fully watched over, and the fact is I don't see them really making a change to the cannabis at this time. Going to the other side of the business pressures and the feds, I've said forever, I know the feds are always looking at talking about the reclassification, and I never really felt that it was much there. I did feel, and I still do feel, that the federal government right now is working on some type of reclassification, but with all the other methods that typically happen in the Fed, you don't think that that's going to happen anytime soon. They have to get the government shutdown taken care of first, and then they can go back to looking at other business. But the longer this shutdown takes, the more that that's going to get delayed because other items are going to be pushed forward. As far as our business growth, we have for the last year and a half, two years, that we were refocusing our business to expand the brands. That's part of the reason that we're looking at going into the hemp beverage business. We feel that that is something that we can be very successful at. We've been doing our beverage in the cannabis section, and it's very well accepted. And this is just another way to get our brands and make better money for the revenue side on the growth of our business. is expanding the brands and concentrating on wholesale. Yeah, the retail, we're not nearly as big as a lot of our counterparts in terms of retail. We don't hate the retail. We just understand that it's a totally different business, and the margins are going to come continually down with the pricing pressure. But we're focusing a lot on wholesale, growing the brands, getting into more states. We're still looking at M&A for retail. additional retail and processing in other states. And we're going to continue to look to put our brands, and we're going to pay attention to what happens with hemp, but we feel right now that beverage is one section of hemp that we can continue our growth.

Okay, thanks for that. And one more, if I may. I mean, you mentioned getting into more states, and obviously we've seen the recent, you know, Pennsylvania, Maine, New York. If you're looking big picture here,

know if you don't want to name states maybe even areas of where you would look to next well we're looking at growth states and when it comes to licensing and acquisitions or mergers we're looking to get to states that we can bring our brands into that states that don't restrict or have limited restriction on what is allowed pennsylvania is a restricted state but We're very hopeful that with adult use, that will change. But we will look in the rest of the Northeast. We'll start going down the East Coast and moving towards the Illinois area as the states come on the market. In terms of the hemp, we are going to really wait for our partners to tell us which states they recommend as the next growth state for that market.

Great. Thanks for that. I'll get back to Q.

Your next question comes from the line of Pablo Zunich from Zunich & Associates. Your line is live.

Thank you, and good morning, everyone. Look, just focusing on Delaware, I know people, you know, think of Delaware as a small state, but obviously it's a very important contributor to your business, and you're the market leader there. So the first question, I think you had guided that you expected the market to grow about, you know, 1.5 from the medical base. But you said that retail sales went up about 48% sequentially and sales began on the 1st of August, right? So if I try to count it as a full quarter, that would be like almost 80% growth. So that's well ahead of your expectations. So the first part of the question is, am I right? And things are going well ahead of your expectations in Delaware, right? And I know you don't give guidance, but the second question would be, how should we think about Delaware performance at the retail level in the December quarter? I know it's not the summer, but the momentum seems to be pretty good.

Thank you. Hey, Pablo. Thank you for the question.

I think Delaware is performing in line with our expectations. Retail is potentially outperforming a bit, but I wouldn't say a tremendous amount. We're continuing to see growth. One of the things that we had in our projections was that some things by the beach may slow down a little bit. We haven't seen as much of a slowdown as we anticipated, and our wholesale growth has been consistent. Month over month, we continue to continually increase. You know, we're ramping production on the heels of it. We're taking a look category by category and making sure that we have leadership positions in each one of the key categories. And I think we're well on our path to success there.

Right. I know we know how many licenses have been issued, but do you have line of sight in terms of how many stores will be open by December and, say, by June next year? Because obviously that will expand your wholesale market. But do you have a sense of that?

Pablo, it's still a little foggy in terms of opening dates for some of these stores. What I can tell you is that we are actively engaged with all of the license holders in a pre-open position and supporting those folks with education around our brands, any type of support they may need as we've been a longstanding license holder in the state. We're trying to become advocates for these businesses as they open, but we don't have a true line of sight to any of that.

Okay, thank you. Look, on the last question, I understand the business model in New York and Pennsylvania are different, but I'm trying to understand in the case of New York, how involved are you going to be on the marketing side? I mean, are you just going to collect the licensing fee or or are you going to be involved in helping on the sales effort in any way? In the case of Pennsylvania, I think there's still a bit of a ramp up there on the cultivation side of things. But right now, when you're helping the sales team there, are you really licensing your brands and introducing your brands, or not because you haven't started production yet and you're helping them sell their brands? If you can just clarify that, please. Thank you.

Pablo, thank you for the question. So from a New York perspective, we're taking an incredibly active role in the entire process, from manufacturing through inventorying through selling and distributing the product and ultimately marketing it to pull it through. So we're actively owning that process and very excited by the opportunity in New York. PA, related to the brand questions that you had, You know, we are underway with the state of Pennsylvania for getting all of our brands approved, the brands that will be applicable for that market. So that approval process, I do believe, takes a little bit of time with the state, so we're actively underway with that. In the meantime, there are active lists of brands and SKUs represented by TILT in that state, and so You know, we are actively assisting them with our relationships, improving their own relationships, identifying some pricing opportunities and some different bundle opportunities. So, you know, we're very active with their team. They've got a great sales team there. And we're literally just improving their business.

All right. Thank you. And, Mario, I'm going to add one last one here, if I may. You know, to leave in there, thank you yesterday. You know, and obviously they were the pioneers on this strategy on 280E and then certain tax provisions. And of course, you know, I'm a neutral, impartial observer, but obviously I support the industry's stance on this unfair tax policy against the industry, of course, right? The industry, of course, should be paying taxes as any normal corporation. Why they be paying these very onerous tax rates? All that said, In the case of Trulieve, according to their TQ filing yesterday, the IRS is imposing penalties on some of their policy, and it seems that it's a partial penalty that could be more. They disclosed about $38 million in penalties on some of their subsidiaries that are using this uncertain tax benefit liability policy. Are you encountering that? I haven't seen your TQ that, but is that something you're going to comment on?

We're not seeing that, Pablo. Obviously, there's a difference between how we file our tax returns and then how we then record our provisions for accounting purposes. Our tax returns historically have been audited, and we've been successfully closing those audits without any adjustments. So we have not experienced any penalties that some of our peers are experiencing. our experience because they're being a lot more aggressive in their actual tax filings.

Got it. All right. Thank you. There are no further questions for question and answer session.

I'd like to turn the call back over to the moderators for closing remarks.

Thank you, everybody, for joining us this morning. I hope you all have a good day.

This concludes today's conference call. Thank you for connecting you may disconnect.