TILT Holdings Inc.

Good afternoon everyone and welcome to TILT Holdings third quarter 2021 earnings conference call and webcast. Today's call is being recorded for replay purposes. A replay of the audio webcast will be available in the investor section of the company's website approximately two hours after the completion of the webcast and will be archived for 30 days. At this time, I'd like to turn the conference call over to your host for today, TILT's Director of Investor Relations, Sean Mansoury. Sir, please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining us. Earlier today, we issued our third quarter 2021 earnings press release. The press release, along with our quarterly financial statements and MD&A, are available on CDAR as well as on our website at tiltholdings.com. Please note that during this afternoon's webcast, Remarks made regarding future expectations, plans, and prospects for the company constitute forward-looking statements within the meaning of applicable securities law. Actual results may differ materially from those indicated by such forward-looking statements as a result of various factors, which we disclose in more detail in the Risk Factors section of the MD&A for the three and nine months ended September 30, 2021, filed with the applicable Canadian Securities Regulatory Authorities, which can be found on CDAR.com. We remind you that any forward-looking statements represent our views as of today and should not be relied upon as representing our views as of any subsequent date. While we may update such forward-looking statements in the future, we specifically disclaim any obligation to do so, except as is otherwise required by applicable law. On today's call, we will refer to certain non-IFRS financial measures, such as adjusted EBITDA, working capital, and gross profit and margin excluding changes in the fair value of biological assets and inventories. These measures do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. Management considers these certain non-IFRS measures to be meaningful indicators of the performance of our business in addition to but not as a substitute for our IFRS results. A reconciliation of such non-IFRS financial measures to their nearest comparable IFRS measure was included in our press release issued earlier today. On today's call are TILT CEO Gary Cento, CFO Brad Hoke, and COO Dana Arvidsson. Following our prepared remarks, we will open the call for questions. With that, I'll turn the webcast over to Gary.

Thank you, Sean, and good afternoon, everyone. The first three quarters of 2021, as it pertains to the legal cannabis industry, have been nothing short of fascinating. The year began with heightened expectations for some type of legislative reform sparked in part by last November's election results. With the majority of Americans supporting some type of cannabis legislative reform, the hope was that a Democrat-controlled executive and legislative branch would help break the logjam for reform. However, that hope was relatively short-lived as the split between the two bodies of Congress continued. with one side seeking to advance a steady stream of incremental reforms, such as the Safe Banking Act, while the other seeks to resolve all of the effects of the past 100 years of prohibition and social inequity in one sweeping piece of legislation. From a capital markets perspective, as the euphoria for a green wave of legislation began to wane, a number of custodians began restricting their clients as they would no longer hold shares of U.S. cannabis operators, effectively dislocating the sector from the broader capital markets. In the face of that dislocation, multi-state operators, including TILT, continued to post solid second quarter results, which went largely unnoticed. Heading into the fall, the combination of ongoing supply chain disruption and inflation has started to affect the consumer, and growth has slowed a bit, as one might expect. Trends that we are seeing in terms of increased supply in certain state markets and changes in consumer behavior are in line with what fellow multi-state operators have been reporting in their earnings calls. This tilts view that as the legal cannabis markets mature towards adolescence, these types of trends are inevitable and at the center of our current business strategy. While certain factors may have accelerated the maturation process, shortening what we envisioned to be a 12 to 18 month timeline, our top line performance in the third quarter clearly demonstrates that our thoughtful transition from a successful bulk sales strategy towards branded packaged goods was the right one. By targeting the 20% to 30% of shelf space that most MSOs reserve for curated portfolios of third-party products that their customers demand, we believe we have created a sustainable business model that can evolve with the broader cannabis marketplace. For the quarter, on a consolidated basis, TILT generated nearly 40% year-over-year organic revenue growth and was up double digits on a sequential basis. which was impressive given the broader market headwinds I mentioned earlier. And we achieved top-line revenue results without the benefit of any new markets or closing of any acquisitions. In fact, we did so with less assets in 2021, having shed our software and services business towards the end of 2020. While we are pleased with this performance, we did experience some margin compression due to a variety of factors, which Brad will discuss in more detail, that impacted our adjusted EBITDA guidance for 2021. For Jupiter, our inhalation, accessories, and technology business, it is no surprise that the global supply chain environment remains volatile. During the quarter, we continue to see heightened freight costs for product imported from China, as well as lower margins associated with customer mix. As we stated last quarter, we do not expect the supply chain headwinds to ease over the near term, however, remain committed to our customers and believe that it is extremely important for us to be there when they need us most. While it may impact Jupiter's profitability over the short term, we believe that the goodwill it creates is invaluable over the long term, and we have already started to see those benefits in the form of increased order size. Additionally, with some of our competitors continuing to struggle with supply chain management, our decision to increase our inventory position beginning last quarter is paying off, as we are able to step in when they falter, resulting in a number of new accounts based on the very fact that we have had product available to immediately ship. At our plant-touching businesses, our corporate development team, supported by our operations, regulatory, compliance, and legal teams, continue to do a fantastic job signing new brand partners across our markets, including Arrow, 1906, and Old Pal. We know that demand exists for differentiated products. However, much depends on our ability to identify the brands best aligned with market demand and activate the right SKUs in those markets in a timely manner. Part of that process involves regulatory approval. And in the case of Pennsylvania, that process has become opaque in recent months. While we are certainly not alone in this, it is especially frustrating given that we continue to carry raw materials in the vault to ensure that we are ready to manufacture our brand partners' differentiated products to spec as quickly as possible. To be clear, these delays are not the result of failing tests for a given product. It is strictly about getting the SKUs, packaging, and marketing materials approved by the state's Department of Health. While outside of our control, the persistence of these delays remain the primary reason for why we anticipate coming in at the low end of our 2021 revenue guidance range. Looking to those items within our control, I continue to view our plant touching operations as still in the process of scaling, creating numerous opportunities for TILT to improve upon efficiency as we strive to achieve maximum capacity at our facilities. In both Pennsylvania and Massachusetts, I fully expect to see improved grow yields, which is precisely why we added a new head of cannabis operations, head of cultivation, and promoted our head of processing, all of whom I highlighted during our last call. While only together as a team for a few months, I'm excited about the progress they have already made in terms of improved SOPs, streamlined workflow, and spotting opportunities to make modest investments in processing equipment and lighting fixtures capable of delivering better efficiencies and higher yields from our existing asset base. Dana will discuss these efforts in more detail, but suffice it to say that when it comes to margins in the plant-touching business, it all comes down to the garden and our ability to grow with intent based on market demand. Before passing the call off to Dana, I want to take a moment to highlight the progress we have made in demonstrating the complementary nature of our plant-touching and non-plant-touching businesses. We entered the year with approximately 20% of our consolidated revenue coming from customers of both parts of our business. Truthfully, that was more by happenstance than design. However, cross-selling has become a key component of our new strategy. And as a result, that number now stands at 40%, doubling where we began just nine short months ago and with plenty of room to run. Tilts has come a long way in a very short period of time. And while I will be back with a few closing comments before opening the call to Q&A, I could not be more proud of the commitment our team has shown in executing our strategy at such a high level. And we are just getting started. With that, I'll turn the call over to Dana for operational updates.