TILT Holdings Inc.

Good afternoon and welcome to Tilt Holding's fourth quarter and full year 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. I would now like to turn the conference over to your host today, Phil's Head of Investor Relations and Corporate Communications, Lynn Ricci, please go ahead.

Thank you, Sherry. Good afternoon, everyone, and thank you for joining us. Earlier today, we issued our fourth quarter and year-end 2022 earnings press release. The press release, along with our report on Form 10-K, is available on the U.S. Securities and Exchange Commission's website at www.sec.gov, on CDAR at www.cdar.com, and on our website at www.tiltholdings.com. Please note that during today's webcast, remarks made regarding future expectations, plans, and prospects for the company constitute forward-looking statements. 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 Amendment No. 2 to the Form 10 Registration Statement filed by TILT with the SEC and on CDAR. 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 otherwise required by law. As of today's call, we are presenting our financial results in accordance with the United States Generally Accepted Accounting Principles, or GAAP. During the call, management will also discuss certain financial measures that are not calculated in accordance with GAAP. We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for TILD financial results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to their nearest equivalent GAAP measure is available in our earnings press release that is an exhibit to our current report on Form 8K that we filed with the SEC and on CDAR today and can be found in the Investor Relations section of our website. On today's call are Gary Santo and Dana Arvidsson. Following our prepared remarks, we will open the call for Q&A. During today's prepared remarks or during the Q&A session, we may offer metrics to provide greater insight into our business and or our financial results. Please be advised that we may or may not continue to provide these additional metrics in the future. With that, I will now turn the call over to our CEO, Gary Santo.

Thank you, Lynn, and good afternoon, everyone. 2022 marked TILT's first full year of the strategic pivot we launched during the first quarter of 2021. As one of the first operators to embrace the CPG strategy that you now hear so many others speaking of, the second year of our strategy implementation proved equally as important. If 2021 was all about proof of concept, 2022 was about activating and scaling it on an enterprise-wide basis. Once again, the broader cannabis marketplace did not make it easy on us, with significant headwinds challenging us every step of the way. As a result, our overall performance was not as strong as we had hoped at the outset, and we will discuss the reasons in more detail. But through it all, we remain laser-focused on the implementation and refinement of our strategy. Given TILT's asset-light, agile structure, we exited 2022 battle-tested. And with our recently announced refinancing and debt reduction efforts squarely behind us, We are poised to carry our momentum into 2023, where with our stable capital structure, ongoing positive cash flow from operations, and a team fully equipped for success, we can take on the crucial optimization phase of our strategic evolution. A few operational highlights from 2022. First and foremost, we signed six new brand partners, including Fourth Quarter Editions Coda Signature and Little Beach Harvest, our Shinnecock Nation partners brand. This brings our total number of brand partners to 10 as we continue to round out our portfolio of product offerings to provide a broad array of form factors, quality levels, and price points for our B2B customers and the consumers they serve. This meant delivering on our previously announced goal of activating more than 100 new SKUs, which we exceeded, exited 2022 with over 145 brand partner SKUs in the market. For a company that only two years ago had focused its cannabis operations on bulk wholesale production, this almost overnight transformation towards becoming a packaged goods and distribution shop was nothing short of remarkable. There were undoubtedly some grinding gears in the process and no shortage of efficiencies to be had, but a remarkable transformation nonetheless. And with each new brand partner activation, we became more efficient, quickly assimilating lessons learned from prior launches and adopting best practices along the way. That is the advantage of having that asset-light, nimble structure I mentioned earlier. As a result, Tilt can now regularly bring its partners to market in anywhere from 90 to 120 days, complete with a thorough go-to-market strategy designed to allow our brands to launch successfully, ramp quickly, and scale to profitability. Our launch of former NFL running back and longtime cannabis enthusiast Ricky Williams Heisman brand in time for last year's football season is a great example of this progress. As that launch occurred within 90 days of contract signing, and by the end of their first quarter of being in market, Heisman had become a top revenue contributor. Continuing on our progress, we launched Coda Signature, our premier edible brand, in Massachusetts on March 1st. Coda have found immediate success and took it even further at this year's New England Cannabis Convention, where their coffee and donuts infused chocolate took first place in the Best Candy Edible category. Not satisfied with that order alone, Coda also took home the award for Nikan's Massachusetts Best Overall Edible for 2023. This is the unrivaled value proposition that we offer our brand partners. The ability to bring all our resources to bear, treating our brand partners' products as if they were our own, and sharing in our combined success. We may not be the biggest operator in the space, but for independent brands seeking to expand, being powered by Tilt is more than just a tagline. It's a recipe for success. Our ongoing evolution into a CPG manufacturer required that we reimagine, retool, and reinvest in our Pennsylvania and Massachusetts cultivation and manufacturing facilities in order to support this dramatic change. While the early results have provided improved harvest yields of seven times in Pennsylvania and four times in Massachusetts, we have quite a ways to go in terms of achieving efficiencies and maximizing productivity. This is to be expected of any reboot, let alone one as dramatic as this, but we could not be more pleased with the progress we've made to date. Also in 2022, we moved into the construction phase of our partnership with the Shinnecock Indian Nation in Southampton, New York. Breaking ground on their 5,000-square-foot dispensary in eastern Long Island, we expect to have doors open and shelves stocked with product in time for the summer tourist season and look forward to continuing to build our relationship with the nation and its members. On the hardware side of our business, the vape segment grew as a percentage of the broader cannabis market, but with that growth has come an increased demand for new and differentiated products. We heard the market loud and clear on this, and as one of the only hardware distributors with a full R&D lab on site, our subsidiary, Jupiter Research, brought innovation back into the vape category through several new products that we announced at last year's MJBiz conference in November. Market reception has been strong, with several customers ready to place orders once we formally launch these products into market, which we expect to do in the first half of 2023. Speaking a bit more broadly about our strategy for a moment, when we set out on our B2B CPG brand partner path, it was with the belief that such a business model, executed well, would position Tilt for success in a volatile, hyper-competitive wholesale marketplace. While it would have been far less stressful to build out this model in a more normalized environment, we did not have that luxury and had to choose instead to embrace the chaos that was the cannabis marketplace in 2022. A market predicted to grow north of 30% at the start of the year ended up growing closer to 5%, according to a number of sources, with all manner of price discovery, margin compression, and market oversupply, not to mention a consumer that was under pressure for most of the year. But through it all, our strategy has proven sound. Brand partner products accounted for more than 50% of our wholesale cannabis business in the fourth quarter of 2022, up from 40% in the prior quarter and 20% from a year ago, resulting in brand partner revenue up more than eight times year over year. This revenue proved resilient to many of the market dynamics I mentioned a few moments ago, none more evident than in Massachusetts, where prices continued to decline throughout the year while our brand partner prices actually improved. Most importantly, the demand for these products allowed TILT to outpace growth in the markets in which we operate. Looking across these states, and based upon available state data as well as our own company analysis, we outperformed in Massachusetts, where TILT's revenue grew 9% for the year versus 8% overall market growth. In Pennsylvania, the results were even more dramatic, as while the broader market declined by 6%, TILT's revenue in the state grew by 17% for the year. And in Ohio, while that market grew approximately 24% during the year, TILT's revenue grew by more than 1,000%. Digging into Pennsylvania a bit more, fourth quarter revenue was up 40% sequentially, driven by brand partner launches in the state. While price and margin compression in this market is well documented, our gross margin during the quarter was stable compared to the third quarter and up approximately 600 basis points compared to the fourth quarter of 2021. As strong as that performance is, I do want to temper the enthusiasm a bit, as across all our markets, we were not as efficient in achieving revenue growth as we could have been. For example, Massachusetts experienced additional pressure on its margins as a result of product mix due to the need to sell off older bulk product. To put that in context, in Pennsylvania, we have all but discontinued the sale of bulk product, putting less pressure on their margins and contributing significantly to their success during the year. While there will always be a need for some bulk sales, our goal is to have that be a de minimis component of our brand offerings. We also need to improve on the production side of things, as while product mix is a piece of the story, our cogs were not where they should be. While that is to be expected when rolling out packaged goods production in facilities previously tooled for bulk production, this will be a key focal point for us in 2023 as we seek to employ many of the same concepts seen in agriculture and specialty manufacturing operations outside of the cannabis industry. Speeding that process up a bit is the fact that given the oversupply of biomass in the states in which we operate, we can now be tactical in deploying our resources. In some cases, we can source raw materials at attractive enough prices that we can redeploy internal resources on production, fulfillment, and specialty grow. This is the middle space that I spoke about two years ago when describing where TILT was heading as a company. Cultivation will more than likely become commoditized, and one could argue that it is already underway, even without legalization in interstate commerce. I believe retail is likely to follow, requiring a more tactical approach than simply the number of stores any operator holds. But by owning that middle space, specialty cultivation, specialty manufacturing and distribution, we believe we provide a service that the market will continue to demand. And by remaining asset-light, we can be opportunistic as to flower sources. and agnostic as to where sales are done, whether at bricks and mortar dispensaries, online, or through a delivery model. Lastly, by partnering with brands, as consumer demand shifts over time, we can realign as needed without the concerns of having invested millions of dollars in maintaining legacy brands that may no longer be in favor. Before turning the call over to Dana to walk us through our performance in more detail, a few additional thoughts about our hardware business. As I mentioned earlier, the vape category experienced growth as a percentage of the overall retail cannabis market, growing approximately 12% in 2022 in terms of finished vaping goods sold into the marketplace. We estimate that the hardware portion of these goods sold is approximately 11%. And when you work through the numbers, that amounts to roughly 17% growth in hardware sales during the year. Clearly, Jupiter did not experience that type of revenue growth in 2022, driven in part by its outsized performance in 2021. While we continue to be the largest distributor of seesaw products in North America with over 50% market share amongst distributors, the industry has shifted a bit based on a number of factors. Where price was previously a major focus for buyers, innovation and production efficiencies have become in demand as brands look for differentiation in a maturing market. I believe that is why we received such a positive perception during MJBiz when we demonstrated Jupiter's dedication to innovation and providing customer-driven solutions to the marketplace. As Threads, Concept LVT, and Aiden's Blend Pen come to market in 2023, we look forward to continuing to drive that initiative with a target of having more innovative products ready to debut at this year's MJBiz conference. This is where the connection of our plant touching and hardware businesses is such a tremendous asset. We are able to see consumer trends in our markets, as well as opportunities to develop hardware better suited to those trends and bench test them in market before putting them into production. This allows for a more predictable cadence for innovation and enhances our ability to bring new and differentiated products to market each year. Obviously, some may be modest improvements on existing technologies, while others may be truly disruptive. But, like our cannabis operations, for Tilt to remain successful in this segment, we must build out our portfolio of offerings so we have something in each form factor, price point, and quality level. Our goal is to become a trusted one-stop shop for our customers. Jupiter has an excellent customer foundation, and despite what was a challenging year, we successfully established new partnerships, won back customers who had either left Jupiter or the C-cell platform entirely, and fortified longstanding relationships in the second half of 2022. Our focus will be on product diversification, supported by the innovation I spoke of earlier, as well as partnerships that we will commercialize and hope to bring to market in 2023. Together, we will also look at the increasing number of opportunities overseas, as well as exploring ways to build upon emerging markets to capitalize on legalization efforts abroad. Based on changes implemented in the second half of 2022 and new technology coming to market, we expect this renewed energy will return growth to Jupiter in 2023. With that, I'd now like to turn the call over to Dana to review our financial performance in more detail.