TILT Holdings Inc.

Good morning everyone and welcome to Tilt Holdings second quarter 2024 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 call over to your host today TILS Head of Investor Relations and Corporate Communications, Lynn Ritchie. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us. Today, we issued our second quarter 2024 earnings press release. The press release, along with our report on Form 10-Q, is available on the U.S. Securities and Exchange Commission's website at www.sec.gov, on CEDAW+, at www.cedarplus.ca and on our website at www.hildholdings.com. Please note that during this morning'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 our most recent 10-K filed by TILCS with the SEC and on CEDAW+. 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 TILT 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 CEDAR Plus today and can be found in the investor section of our website. Joining on today's call is our CEO, Tim Condor, and our interim CFO, Brad Hokes. Following the prepared remarks, we will open the call for questions during the today's prepared remarks, 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, Tim Conda.

Thank you, Lynn, and good morning, everyone. During the second quarter, we navigated challenges in both our plant touching and hardware business while remaining focused on best servicing our customers across the Tilt platform. Our plant touching business delivered sequential growth on both the top and bottom line as we continue to grow our customer base in each market despite headwinds in Massachusetts and Pennsylvania. At Jupyter, We are working closely with our current supplier in Asia to improve production and supply chain hurdles which impacted our second quarter results. These changes will enable us to better serve our hardware customers in a rapidly evolving market by both deepening our relationship with our current supplier and evaluating that partnership on a go-forward basis to ensure that we are always getting the best products at the best price into the hands of our customers to support the growth of their businesses. I'll have more to share on this later in the call. For those newer to Tilt, our operations revolve around our primary inhalation capabilities, brands, and product line. Over the past year, we have been focused on stabilizing our business by reducing our cost structure, refining our strategy, and addressing our debt stack in order to build a foundation for long-term success. The actions we have taken have resulted in product portfolio optimization and brand partner rationalization on the plant touching side of our business, incremental investments into neglected maintenance capex to increase cultivation throughput, and overhauling people, processes, and technology at Jupyter to regain market share and maximize the opportunity that we have with our enviable and longstanding customer base. Last week, we finalized the sales reorganization at Jupyter to realign our team to market realities and a rapidly evolving competitive climate. These adjustments will focus our team on supporting and expanding existing accounts while aggressively expanding into emerging markets. With the lion's share of our cost-cutting activities behind us, our focus is on working through the important transition underway in our Jupiter business and returning to profitability going forward. Turning first to our cannabis portfolio. Last year, we initiated a plan to refine our brand partner strategy, focusing on brands that better align with our broader inhalation platform or brands that we have identified to capture white space in the near term in the markets we serve. In the second quarter, we launched Level to fill a gap in our product portfolio after parting ways with 1906. Since its launch, Level has seen its brand continue to gain traction with our launch partners and expand into new doors. Level tablets are formulated with cannabis-only cannabinoids and terpenoids and fit perfectly into a medical market by meeting patient expectations on efficacy, potency, and form factor. We are already receiving positive customer feedback from those that have tried this new offering. E.D. Parker Flour, the newest addition to our bread partner lineup, has also had a strong start in the Pennsylvania market. We launched with premium flower SKUs that were entirely pre-sold ahead of launch, and we expect to release vapes in the coming weeks. Initial flower orders had incredible sell-through rates, indicating the Pennsylvania medical market patients have an appreciation for medical products from design-forward lifestyle brands. Now, turning to our plant touching operations by state. Massachusetts continues to be a competitive market with persistent pricing pressure. However, we have improved our margin profile in the state compared to the year-ago quarter. This is a direct result of our investments made over the past year to improve cannabis yields, potency, and cannabinoid profiles, as well as operational efficiencies that have begun to make a positive impact. On the investment side, new and improved lights across our facility is a major undertaking for us with clear initial results. This lighting overhaul is expected to be complete before year end. We are making other incremental adjustments to increase the quality and consistency of our flower and reduce our costs to operate. Margins also continue to benefit from our product portfolio optimizations, as our product mix is heavily focused on faster moving, higher margin SKUs. Our in-house standard farms and brand partner products benefit from these efforts with enhanced sell-through rates and reduced inventory holding costs. Our retail operations in the state, we believe, are starting to gain steam with marketing efforts bringing an increase in customer foot traffic into the stores and recent basket trends improving as well. Overall, Massachusetts remains a competitive market, but we expect the changes underway and our continued focus on quality product and customer service will allow us to effectively compete in the markets we serve. As the number of retail stores continues to increase, we must remain agile in our ability to pivot and meet evolving market realities. As an example of this, we recently combated extreme pricing pressure at our Taunton retail location that was driven by three new dispensary openings within 15 minutes of our establishment. Another is set to open in the coming weeks. It is a testament to our team's deep relationships with our customer base and our commitment to their wellness that ultimately keeps us competitive. In Pennsylvania, we saw similar dynamics with respect to second quarter results. Revenue was down year over year. However, gross margins expanded due to improvements in our product portfolio and cultivation. As I mentioned earlier, Level continues to make progress as we introduce their products across the state. Level is already yielding strong results. We will be including Level in our upcoming Pittsburgh CannaFest activities as we leverage our community-focused approach. We are excited to expand our customer base for the Level product offerings and connect a great brand to patients at additional retail stores across the state. In the near term, we anticipate modest growth and profitability improvements in Pennsylvania with the key catalyst still being the approval and rollout of adult use. At this point, that timing remains unclear. However, we believe Pennsylvania will be keeping a close eye on its neighbor as Ohio launches its adult use program this week. We continue to urge politicians to move forward with adult use as it is our deep belief that cannabis should be accessible to adult consumers for wellness and recreational purposes, as well as to patients to treat a wide variety of symptoms. We need the Commonwealth to take action and we are calling on its lawmakers to do so. Which is a great lead into Standard Farms Ohio. Ohio continues to be a bright spot in our plant touching business and we have the first recreational stores in the state open earlier this week. We are excited about this launch and expect this to be a busy time as we scale our sales and distribution efforts to meet increased demand. During the initial stages of the adult use rollout, there will be limitations on product form factors and the same purchasing limits will remain in place. Over time, we anticipate that this will evolve as the state allows different products to come to market, along with higher customer purchase limits. As of this week, we have received our dual use license number and Standard Farms is ready and eager to serve the adult use market in Ohio. We currently have a steady supply of key products such as edibles and vapes to support our brand partner, Timeless, and a wide variety of products under our Standard Farms brand. As mentioned earlier, we also introduced Level in Ohio concurrent with our launch in Pennsylvania, which has seen strong adoption. Overall, we are optimistic about our plant touching business and remain focused on market specific optimization. With a lean operational foundation and both near and long-term catalysts in Ohio and Pennsylvania, we are well positioned to drive sustained growth and profitability. Now turning to our vape hardware business, Jupiter. As you can see by our financial results, the impact on the second quarter was primarily due to our Jupiter business. As we have mentioned on prior conference calls, we continue to work through production and supply chain challenges with our manufacturing partner in Asia. This had a material impact on our revenue and profitability during the second quarter. The market is evolving rapidly, and as a consequence, the product makeup in the vape category is expanding to a much larger number of products, deeper customization, and more rapid technology development cycles. Jupiter and its supplier must evolve our business models to meet the moment and support our customers as they continue to grow, not just their brands, but their vape product portfolio mix. To do so, we are moving to a more asset-light, just-in-time production and supply chain model. To accelerate this transition, we are temporarily transitioning five customers to a direct billing and invoicing model with our manufacturing partner. Operationally, our customer relationships will remain unchanged. We will continue to provide direct service, R&D resources, supply chain management, and a robust and evolving suite of Jupiter and C-Cell hardware products to these customers. The only adjustment is that the billing process will be handled directly by our manufacturer which will alleviate our working capital outlay and allow our manufacturing partner to more easily insure the goods that are exported to these accounts. The customers will be serviced by Jupiter under a commission structure and freight, tariffs, and storage costs will shift to our manufacturing partner while this model is active. On a financial basis, with these changes, our revenues will be reduced on an annualized basis but we will benefit from increased gross margins and the freeing up of working capital. As mentioned, it will enhance the insurance coverage our manufacturing partner is required to carry for exported goods, reduce our inventory carrying costs, and have an immediate and positive impact to our outstanding trade payable, all of which address a major hurdle this year in growing Jupiter's business. These changes do not happen overnight. and can be painful to work through. However, we believe this on-demand and commission-based model is required from a business and customer standpoint and will have a positive impact on Jupiter's financial health and long-term viability. Turning to product updates in Jupiter. The first half of the year was not a strong one for the cannabis sector, and as a consequence, Jupiter experienced an ordering slowness from some of its customers. This was expected after Chinese New Year and the large orders placed. However, we are happy to report that orders have started to improve over the end of Q2 and in the start of Q3. Demand for Jupiter and C-cell hardware remains robust, fueled by our strong partnerships with multi-state operators, licensed producers, and prominent cannabis brands. We believe the level of customer service we deliver, along with the innovation and customization we are known for, sets us apart. As an example of this, early in the third quarter, we won back a sizable multi-state operator who placed their first order this week. This win back is a clear example of how we are perceived in the market as an innovation and customer service leader that can achieve a level of scale unparalleled by our competitors. And lastly, on the new product front, we are still awaiting regulatory approvals for the liquid medical device, a vaporizer battery with a cartridge accessory announced in 2020 to be available through European partners for new territories abroad. This will be the first medically certified inhalation device once in market, and our team continues to work with the European certification authorities on the approval process. I'd now like to pass it over to Brad to review the financial highlights of the second quarter before returning for closing remarks.