Marimed Inc

Thank you for standing by. My name is Tina and I will be your conference operator today. At this time, I would like to welcome everyone to the Merriman Incorporated First Quarter 2026 Financial Results 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. To ask a question, simply press star 1 on your telephone keypad. To withdraw your question, press star 1 again. It is now my pleasure to turn the call over to Alex Schwartz, Regional Store Director for Merrimed. You may begin.

Hello, and good morning, everyone. I'm Alex Schwartz, Regional Retail Director for Merrimed in Maryland and Delaware. I'm honored to kick off today's 2026 first quarter earnings call. I'm privileged to work with amazing teams in both states to deliver our high standard of exceptional service to our customers every day. Through constant collaboration with my retail teammates and Merrimed's other regions, I know that every Thrive employee across 13 dispensaries is dedicated to doing the same thing. We have a unified brand, but more importantly, we have a unified mission, and it's a huge part of what I believe makes Thrive the dispensary of choice for so many people. Joining the call today are John Levine, our Chief Executive Officer, Ryan Crandall, our Chief Commercial Officer, and Mario Pena, 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. These risks are discussed in the risk factors sections of our 10-K and 10-Qs available on our website. Any forward booking statements reflect management's expectations as of today, and we assume no obligation 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 overview.

Thank you, Alex, and good morning, everyone. Last night, we reported first quarter 2026 revenue of $39.5 million and positive adjusted EBITDA of $3.6 million. Additionally, we once again generated positive cash flow from operations. That performance was the result of our operational discipline and the strength of our brands and was achieved despite the adverse market dynamics that persist across our industries. Of particular note was our wholesale performance in Illinois and Delaware, where our cultivation, manufacturing, distribution, and marketing teams delivered outstanding results. We grew quarter-over-quarter wholesale revenue in Illinois by 25% and in Delaware by 13%, widening our leadership position in Delaware where we are already the number one wholesaler. In fact, our products maintain market-leading positions across all of our core markets. Zetty Zetty's was once again the number one selling edible across Illinois, Massachusetts, Maryland, and Delaware combined. And our Vydations Powder Drink Mix maintained a top five share across the same state. Brian is going to provide a deeper dive into our first quarter results in each of our markets. I'll now turn to the status of our primary growth drivers I have outlined during our March earnings call. In Pennsylvania, our licensing partner is awaiting state approval of our products and packaging. We remain confident about the revenue potential of our brands in Pennsylvania. especially with adult use sales likely to commence in the near future, as well as our success to date in neighboring states of Maryland and Delaware. In New York, we remain on schedule with our plan there. Construction has begun on the processing kitchen we are building with our licensed partner in the Bronx. We're forecasting licensing revenue generation in both states early next year while doing everything in our control to help speed up this timeline. In Maine, where we also maintain a licensing agreement, distribution of Betty's Eddies continues to expand. Our commercial partner began sales during the fourth quarter of 2025 and has continued to sell into new dispensaries through the first quarter. Licensing allows us to generate revenue and expand our distribution in capital-efficient manner. We will continue to pursue additional agreements in tandem with M&A, which remains a focused avenue of growth for Merrimid. To that point, we are excited about recent developments in Massachusetts, where the dispensary limit cap has increased from three to six. We're very interested in pursuing opportunities to add additional stores in our home state. Our dispensary footprint will expand in Ohio first, where we're leveraging our second retail license there to open a new Thrive location in the Columbus area. We anticipate that store will open before the end of the year. We also look forward to the benefits that the recent rescheduling of medical cannabis will have on Merrimed and the nation. Near term, it blocks in the elimination of 280E related taxes for medical portion of our business. There are still many questions to be answered about the rescheduling. But make no mistake, this is the single biggest piece of federal drug reform in our country's history. and we're thankful for the administration for getting it done. For me, it's a particularly personal moment. Bob Fireman and I founded Meromed more than a decade ago as a medical cannabis company born out of the passion, belief, and the plant's medicinal value. In fact, our name, Meromed, was created as shorthand for marijuana medicine. I am beyond grateful that the federal government has finally acknowledged what we've always known about the plant's medicinal value. That said, this is only step one. We are hopeful that the rescheduling of recreational cannabis will soon follow. In the meantime, we are in the process of registering with the DEA, and we will keep our eyes on the treasurer's guidance with respect to the details the implementation of 280E tax relief. To our investors, thank you for your continued support. Our equity remains significantly undervalued given the strength of our balance sheet. The fact that we own our real estate and the value of our brands, we are confident it is only a matter of time before the markets appreciate what we have created at Merrimed and the bright future ahead of us. I'll now turn the call over to Ryan.

Thanks, John, and good morning, everyone. Let me walk you through our revenue performance at a high level and then across each of our core markets. Our sales, marketing, and operations teams delivered another strong quarter, with wholesale revenue increasing 4% year-over-year and declining 1% sequentially. Several factors drove our year-over-year wholesale performance. First, we maintained deep penetration with coverage in 84% of available storefronts across our core markets on a trailing year basis. Second, were the contributions of our Illinois and Delaware teams, which I'll review in my state-to-state rundown. The sequential decline was expected and consistent with seasonal trends of the industry experiences each year from Q4 to Q1. Turning to retail, We achieved year-over-year growth of 5% during the first quarter and a 7% decline sequentially. Primary contributors to the year-on-year growth were Delaware's adult use expansion that occurred mid-year, significant growth that we achieved at our Upper Marlboro store in Maryland, and continued growth of our loyalty program, which accounted for approximately 80% of our overall retail revenue. We grew our membership count by 10% during the first quarter of 2026. That's significant because the average basket of our members was 2% higher than non-members during the quarter, an improvement of 100 basis points versus last quarter. We believe it's directly attributable to the personalized offerings we're now delivering through the new Thrive app we launched during the quarter. Turning to our individual markets, in Delaware, wholesale sales continued to grow since the commencement of adult use sales in August of last year. increasing 13% sequentially and 373% year-over-year on a pro forma basis. Our brand portfolio again achieved the number one overall market share position in the quarter, with Betty's, Bubby's, and Vivation's all owning the top spot in their respective categories. And the combination of Nature's Heritage and First State branded flour captured the number one spot in the flour category. At retail, revenue declined 12% sequentially and increased 24% year-on-year on a pro forma basis. The sequential decline was in line with our expectations given the seasonality of that market. In Massachusetts, wholesale revenue increased 1% year-on-year and decreased 4% sequentially. According to Hoodie, we outperform the industry in the state both year-over-year and sequentially on the strength of our brandings. Betty's Eddies and Bubby's Bake maintained the number one sales position in their respective edible categories, and Nature's Heritage Concentrates captured the number one position, up from number four at the end of Q4. Vibations, Nature's Heritage free rolls, and in-house gummies all once again ranked in the top 10 in their respective categories. Our retail revenue declined 9% year-on-year and 10% sequentially in Massachusetts, where average order volume decreased approximately $2 per basket during the quarter. We will continue to double down and refine our loyalty program, our new Thrive app, and our digital and in-store customer experiences to drive new customer engagement and existing customer retention. In Maryland, wholesale sales declined 12% year-on-year and 8% sequentially, the result of isolated production issues that we have already resolved and are recovering from this quarter. The resolve of our brand shined through during the quarter, with Betty's, Eddie's, Bubby's, Bybations, and Inhouse Gummies all ranking in the top three in their respective categories by market share. Retail revenue in Maryland declined 5% year over year, but increased 24% sequentially, with our Upper Marlboro store continuing to outperform expectations. Turning to Illinois, where we began distributing our brands in a crowded market just a few years ago, Wholesale revenue increased 22% year-on-year and increased 25% sequentially. Our standout performers were once again Betty's Eddie's, which was the 13th best-selling edible in the state during the first quarter, and Vibation's, which maintained its number six ranking among beverages. Notably, Nature's Heritage flour, which didn't launch in Illinois until late 2024, cracked the top 50 flour brands in the state for the first time, moving up 15 places from 61 to 46. Retail sales in Illinois declined 10% year-on-year and 2% sequentially, principally due to AOV pressure. In summary, I'm pleased to see our brands continue to capture meaningful share where they're available. While competitive brands come and go, our core products have stood the test of time for more than a decade. Quarter after quarter and year after year, regardless of changes in the competitive landscape or market dynamics like price compression, Betty's, Nature's, and our other brands have shown the resilience, the consumer trust, and the staying power that the world's most beloved CPG brands must have to defend their turf. But we are not standing pat. We are continuing to lean in on our product innovation to grab more market share. To that point, we've got a number of new line extensions and limited time special SKUs scheduled to roll out soon that will continue to gain new customers and create deeper loyalty with our existing base. Before handing the call over to Mario for his financial review, I want to thank our teams for executing well within a challenging environment.

Thank you, Ryan, and good morning, everyone.

Turning to our financial results for the first quarter, revenue for Q1 was $39.5 million, reflecting expected seasonal softness sequentially while continuing to grow year over year. On a sequential basis, revenue declined $2.2 million or 5.2% compared to Q4. This decline was primarily driven by lower retail volume, which was expected due to seasonality. AOV remains stable, and across our markets, we continue to see healthy unit demand, particularly in wholesale, where increased distribution and brand penetration are driving volume growth. Within wholesale, lower realized pricing in Delaware was partially offset by stronger unit volumes particularly in that state as well as in Illinois. On a year-over-year basis, revenue increased $1.6 million, or 4.2%, driven by continued retail expansion, including a dull use in Delaware, and increased penetration in wholesale distribution. These gains more than offset lower pricing in our more mature markets. Overall, our revenue performance reflects continued underlying demand for our brands. stable market share, and the strength of our wholesale platform. Importantly, this demonstrates the resilience of our model with volume growth and distribution gains helping to offset a more competitive pricing environment. Gross profit was $15.8 million with a gross margin of 40.1%. On a sequential basis, gross margin was relatively stable, increasing approximately 20 basis points. This reflects continued operational discipline with retail performance and contributions from our Delaware operations, largely offsetting expected mixed shifts towards wholesale. On a year-over-year basis, gross margin declined approximately 110 basis points, reflecting mixed shifts towards wholesale, partially offset by retail margin improvement and operational efficiencies. Overall, we continue to maintain margins at or above 40%, supported by strong brand positioning, disciplined cost management, and efficiencies across our vertically integrated platform. Operating expenses were $14.4 million. On a sequential basis, operating expenses decreased slightly by approximately $100,000. On a year-over-year basis, operating expenses declined by approximately $500,000, driven by lower bad debt expense and reduced marketing spend, partially offset by investments in infrastructure, including IT and finance capabilities. Operating income was $1.4 million in Q1, compared to $2.4 million in Q4, reflecting the impact of lower revenue and margin pressures sequentially. On a year-over-year basis, operating income improved significantly from 700,000, demonstrating improved scale and cost discipline. Adjusted EBITDA was 3.6 million, representing an EBITDA margin of 9%. On a sequential basis, EBITDA declined by approximately 800,000, primarily driven by lower revenue and mix, along with modest increases in personnel-related expenses. On a year-over-year basis, EBITDA increased by approximately 1.1 million, with margin expanding from 7% to 9%, reflecting revenue growth, improved operating leverage, and lower bad debt expense. Taken together, these results highlight improving operating leverage in the business. As we scale revenue, we are maintaining cost discipline, which is translating into stronger year-over-year profitability. GAAP net loss for the quarter was $3.8 million compared to a net loss of $4.6 million in Q4, driven primarily by an accounting gain we recognized on the refinancing of our legacy Series B preferred stock and by improved operating performance. On a year-over-year basis, GAAP net income improved significantly from the loss of $5.4 million in the first quarter of 2025. reflecting both stronger operating results in 2026 and a non-recurring bad debt accounting write-off taken in 2025. Turning to our balance sheet and liquidity, we ended the quarter with $7.9 million in cash and cash equivalents, down $1 million from $8.9 million at the end of 2025. We generated positive operating cash flow in the quarter while investing modestly at approximately $800,000 primarily related to targeting capital expenditures and license renewals. From a capital and finance perspective, after restructuring the Series B preferred shares with Navy Capital, our current liquidity position will provide sufficient flexibility to support operations and execute on our near-term growth initiatives. Overall, Q1 results reflect continued year-over-year growth supported by retail expansion and wholesale distribution gains. Stable gross margins demonstrating the strength of our model despite a more competitive pricing environment and targeted capital allocation to fuel our growth. As John mentioned, we are thrilled with the rescheduling news announced on April 22nd. Approximately 20% of our first quarter retail revenue were medical sales. Therefore, this change should drive an immediate benefit from a tax perspective. pending further movements in Washington and further guidance on implementation, including timing and any transitional considerations, we will continue to monitor developments, including the outcome of the planned mid-year hearings. In the meantime, we remain focused on execution and believe Merrimet is well-positioned to benefit as clarity emerges. I'll now turn it over to John for closing remarks.

Thank you, Mario. Before we take questions, I want to thank our employees. They are what fuels my optimism about our future every day. Their tireless efforts and contributions are the backbone of our success. Operator, you can now open the line for questions.

As a reminder, to ask a question, simply press star 1 on your telephone keypad. Again, that is star 1 to ask a question. And our first question comes from the line of Pablo Zulonic with Zulonic & Associates. Please go ahead.

Thank you, and good morning, everyone. John, can you expand on how rescheduling, as it's been announced, how does that change your strategy? Does it make you, I know that M&A is part of the growth strategy, but does this make you more acquisitive or more intent on growing through M&A? And if you can give nuance there in terms of growing in an asset-light way in terms of licensing versus actually buying businesses and hard assets in other states. Thanks. Let's start with that.

Morning, Pablo. Thank you for the question, and thank you for joining the call. Yes, you know, there's a few factors that have made us change a little bit our thoughts because not just the rescheduling but also Massachusetts changing There are limits here in the state, so we're looking at expanding more retail in Massachusetts now that we're able to, which will help us get the additional margins. But that will also give us the ability to also look at additional medical facilities here in Mass so that we can get to our maximum of six apiece. So we're going to look at expansion in other states the way that we still have been to add additional retail and some licensing or purchasing of other licenses in states where we can go in with the process to expand our brand and get the brands into as many states as possible. We're very excited about the opportunity in New York and Pennsylvania to bring our brands into those states. And I think that the rescheduling and the adult use in the future in Pennsylvania will be positive impact on us.

Okay, thank you for that. But just if you can expand on the theme of gaining depth versus, you know, entering new states. And by that I mean, for example, in those licensing states, could you actually be in a position to buy the assets, to buy those businesses? Or is it more about entering other states? Just trying to understand the M&A part from a gaining depth component versus actually entering new states.

With expanding the brands, you know, manufacturing, the rescheduling isn't as big of an effect. The retail would be the concentration of expanding into additional states, especially ones with medical at first because of the fact that the medical has had the conversion to a reschedule and the adult use is still under review. It's a matter of looking at the license of our products, we're still on the same schedule of looking at whether it's a partnership or if it makes more sense to go out and use our cash flow or raising money to buy additional state licenses for processing. It still hasn't changed much because the 280E on the retail side causes the fact that people won't be able to get the credits to have the cash flow if it's adult only. This is a medical-only change right now, and we're hopeful to see the adult use change in the near future.

Thank you. And then maybe for Ryan, I guess a two-part question. Other companies are talking about more price stabilization in some markets, not necessarily everywhere. If you can discuss that in your top markets, what are you seeing in terms of pricing and are things beginning to stabilize? If you can touch on that. Let's start with that, Brian, first. Thanks.

Sure, Pablo. Thank you for the question. In terms of price stabilization, I think you really got to look at it by category. And I think there are still categories that are stressed by price compression in several of these markets. I feel like when we look at Illinois, we still see prices... you know, more aggressively pricing, and I think there's more producers coming online. So as we look at that, I think Illinois still has a way to go. Massachusetts appears at times to have stabilized and start to recover a little bit, but, you know, at the end of the day, I think it's still a dogfight in Massachusetts. Maryland is still a difficult wholesale market with some of the large producers there driving price down. So on the flower side, I think there is still a rock fight going on out there in many markets. I think the edibles have been, you know, for the large part protected. You know, some of the newer innovation products around infused pre-rolls and some of those categories, rosin, you know, tend to get a premium and tend to be a little bit more stable from a price standpoint. But then, you know, traditional vapes, you know, traditional pre-rolls, you know, jarred flower, you know, larger format flower, there's still a lot of price compression in these markets. I think Delaware probably has the least amount of compression at this point, but that will be at some point in the future.

Right. Thank you. And then staying with Ryan, in terms of retail, I mean, we track what we call revenue per store by state very closely, right? In some states, little total sales growth, but there's more stores. So that means that there's revenue per store erosion. I understand in the case of Maryland, there's pretty much a cap on total stores, right? But can you just differentiate in terms of how bad has it gotten in terms of revenue per store erosion comparing, say, Illinois versus Massachusetts and, I guess, versus Maryland? Although in the case of Maryland, there is a cap. Thanks.

Sure, Pablo. I appreciate the question. I think it depends on, you know, the scope of time that you look at. I think there's been erosion everywhere. I mean, I think eighths of cannabis used to be $60 an eighth, $70, $65 an eighth in every market. And we've seen that consistent decline of both product cost as well as overall basket across markets. And I think the metrics that we're focused on are increasing our transactions, making sure that we increase our loyalty program, that when folks enter our store, they're getting our products, that they are returning to buy them again, and that we're making sure that we're staying in touch with our customers and listening to them. So I think that's what we're really laser-focused on. And ultimately, yeah, it's a challenging environment. And same-store sales have been impacted in a lot of places. But I think at the end of the day, you know, the well-run businesses – you know, that continue to innovate and continue to not accept, you know, mediocre results are going to be the ones that succeed in this environment.

Right. And one last one maybe for Mario. In terms of, you know, the percent of your own brands being sold in your own stores, is that where you want it to be or is there room to increase that? And if you can be specific about certain states. Meaning, in terms of your own thrive stores, how much is own brands versus third-party brands? Thank you.

Well, Ryan can speak a little bit more to it as well, but that is a significant and a core strategy from a sales perspective. We obviously want to increase the mix of our own products in our stores, and it's something we even have a dedicated person to that. and focusing that across all markets. So that is a permanent strategy that we have working, you know, in our business.

Okay.

Yeah, and I can add on to that, Pablo. I can add on to that, Pablo, if you'd like. Yeah, I mean, we are very focused on making sure that our products show up in our stores, you know, better than they show up in any store. You know, So that's first and foremost. And then second is, you know, we are focused on making sure that, you know, we're recommending our products first and that we're giving our products every ability to sell, you know, at an increased rate over time within our stores. So that is a core area of focus, and there is a team, you know, gold on successful results there.

Right. Thank you. And just one last one, and apologies to the other people on the Q&A queue here. I mean... John or Mario, with all the news flow and rescheduling, are you getting more inbounds in terms of M&A, meaning more bankers reaching out or more brokers reaching out or even more companies reaching out in terms of the supply of businesses available for purchase? Have those inbounds changed since the rescheduling news or not really much?

Thank you, Pablo. No, the inbounds of the 280, sorry, the rescheduling has not affected the M&A coming in. There has been no change in any banking because this is not affecting the banks. Banks, credit card companies, they're all acting the same as if it's still an illegal situation. This has only been approved for rescheduling of the medical, so there isn't the wide open change across the industry. I do think you will see it as the adult use becomes rescheduled and if they pass a banking rule. So there's more to come. But right now it's more about people are seeing more deals coming in Massachusetts with the change of the licensing aspect in MAPS more than the rescheduling.

All right. Thank you. That's all for me. Thank you.

Your next question comes from the line of Joe Gomes with Noble Capital Markets. Please go ahead.

Good morning. Congrats on the quarter.

I'd like to start out on Massachusetts, you know, with the increase from three to six. Any geographies in Mass where you would prefer to look at or, you know, still more just Boston area focused? Maybe you could touch on that first.

Yeah, Massachusetts is an exciting opportunity, but we're not going to rush into just trying to buy a license. We have to find one that fits into a good market that the competition around it is going to be something that we feel is the right competition. There's a lot of stores that are for sale in the western part of the state along the New York border that are one of maybe 50 in an area in a small little 20-mile radius, and we don't want to go into a situation where there's an overabundance of store. We want to find markets that will be maybe on the borders of other states but also have the competition levels that are more reasonable like the existing stores that we have today.

Okay.

And then you mentioned, pardon me, an isolated production issue in Maryland that maybe you could give us a little more colors what happened there and are we all fixed and back to normal?

Yeah, Joe, thank you for the question. Yeah, I mean, we did have some turnover issues for some key people there that we have since recovered from. And, yes, that has all been resolved, and I think we are in a great position.

Okay.

And then, Ryan, maybe just, you know, on the loyalty program, you know, impressive, you know, quarter over quarter increases. How many people are on the loyalty program now? And I think you mentioned like 80% of sales are now coming from members in the loyalty program. What percent of revenues are also coming from online sales?

Sure, Joe. Thank you for the question. So I can circle back with you with an exact number of the loyalty membership, but it's in the hundreds of thousands at this point of active members. And in terms of online sales, people that put in an order before they get to the store is north of 50% at this point. And as I mentioned, we just launched our new Thrive app. And that app really links loyalty well, and it really drives loyalty as a part of signing up for the app. So that's been a very impactful thing to driving both increased app adoption as well as increased loyalty adoption.

Okay, and then one more for me, if I may. The Metropolis dispensary, I know that one has had some competitive challenges. I don't know if you can give us an update on how that is going these days.

Sure, Joe. Metropolis is a fantastic store for us. Very profitable store. We've got two stores that opened within a mile of us, a mile and a half of us. That impact has been felt. We compete very well with those stores. Ultimately, I feel like the Metropolis store has stabilized and has started to show signs of growth again.

Great, thanks. I'll get back in queue.

Joe, and just to circle back on the loyalty number.

Sorry.

Yeah, Joe, just to circle back on the loyalty number. It's just short of 400,000. It's 398,000 active members.

Thank you.

Again, to ask a question, simply press star 1 on your telephone keypad. And with no further questions in queue, this does conclude our today's conference call. You may now disconnect.