Vext Science Inc

Thank you for standing by. This is the conference operator. Welcome to the VEX Science Bank third quarter 2023 financial results conference call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero. I would now like to turn the conference over to Jonathan Ross. Please go ahead.

Thanks, operator. Good morning, everyone, and thanks for joining us today. VEXT's third quarter 2023 financial results were released earlier this morning. The press release, financial statements, and MD&A are available on CDAR+, as well as on the VEXT website at vextscience.com. We would like to remind listeners that portions of today's discussion include forward-looking statements and that forward-looking statements are included in today's filings. There can be no assurance that these forward-looking statements will prove to be accurate or that management's expectations or estimates of future developments, circumstances, or results contained therein will materialize. Risks and uncertainties that could affect future developments, circumstances, or results are detailed in the MD&A and VEXTS, other public filings that are made available on CDAR+, and we encourage listeners to read those risk factors in conjunction with today's call. As a result of these risks and uncertainties, the developments, circumstances, or results predicted in forward-looking statements may differ materially from actual developments, circumstances, or results. This call also includes non-IFRS financial information, and such non-IFRS financial measures are subject to the disclosure and reconciliation included in our press release disseminated earlier today. Forward-looking statements made during this conference call are made as of the date of this call. Vext disclaims any intention or obligation to update or revise such information, except as required by applicable law. Vext's financial statements are presented in U.S. dollars, and the results discussed during this call are in U.S. dollars. I will now pass the call over to Eric Offenberger, Chief Executive Officer of Vext.

Thanks, John. Good morning, everybody, and thank you for joining our third quarter 2023 financial results conference call. I am joined on the call today by Trevor Smith, CFO of VEX. I will start by providing a brief overview of our progress this quarter before turning it over to Trevor for an update on our financial performance. The market and consumer environments remain similar to what we have discussed over the past several quarters. While inflation has begun to moderate, challenges to consumers' discretionary income remain. From a market-by-market perspective, beginning with Arizona, pricing continued to decline in the quarter, primarily as a result of ongoing oversupply in the market and the consumer factors I've already mentioned. In Arizona, our near-term strategy continues to be to ensure that our cultivation footprint perfectly matches demand within our own retail footprint while executing well at a retail level. This is a strategy designed to both drive results in a tough short-term environment while setting the company up even better on the other side of it. We have made significant progress against this strategy over the past several months. In quarter two, we sold down our outdoor inventory, which we expected would continue to decline in value. This enabled us to maximize cash flow from the product at the cost of margins in the quarter. In mid-October, we announced the sale of our Prescott Valley cultivation facility, which closed in mid-November. This brought us $6.5 million in additional cash that was reallocated to debt repayment and funding growth in Ohio, while ensuring our internal supply and demand are better matched on a permanent basis with supply coming out of our modular Eloy facility. The first harvest at Eloy is expected in quarter one of 2024. From a retail standpoint, our focus in the current environment has been on driving traffic and volume through our stores, while managing gross margin and costs at the store level. Basket size has compressed across the market, and VEX is no exception. Though the data we have seen suggests we are outperforming on key metrics, traffic, unit, and average sales per door, Our strong view is that companies who can maintain their customer base and provide them value now will not only grow share in the short term, but be positioned to accelerate out of this current environment both on top line and margin as consumer spending improves, winter visitors return to Arizona, and basket sizes begin to grow. In quarter three, gross margins began to move higher compared with quarter two, And we expect this to continue through quarter four and into 2024, as we continue to form more of our own product through our own retail stores. And our supply and demand ratio starts coming into balance in the market. Turning to Ohio. In early November, Ohio voters approved the Marijuana Legalization Initiative, which will make Ohio the 24th state in the U.S. to legalize dollar use cannabis. With a population of approximately 11.7 million, it is one of the top 10 states in the U.S. by population. Currently, 1.5% of the total population are on the medical program. If we were to use similar markets as a model for what to expect, we can conservatively say that around 10% of the state's population are cannabis consumers, indicating an increase of potential consumers of 522% in Ohio. becoming an estimated $4 billion market within the next four years, as reported by MJBizDaily. I cannot overstate the importance of this development to BEX. We expect Ohio to be a big driver of growth for us over the next several quarters, and we have taken several important steps since our quarter two results to solidify our position in the state in preparation for adult use in 2024. In October, we completed the acquisition of Appalachian Farm Processing and Cultivation, making this fully vertically integrated in Ohio. The results of the Appalachian Farm entities will be included in our quarter four 2023 numbers. Based on current performance, we anticipate that they will generate free cash flow for the remainder of the year and into 2024. Shortly after the end of the quarter, we also announced agreements to acquire two additional dispensaries in Ohio. This transaction will position us with a meaningful retail footprint in the Ohio market and provide us with the scale necessary to generate sustainable long-term results. Upon completion of this transaction, which is expected to occur in 2024, BEX will have an operating Tier 1 cultivation facility, an operating manufacturing facility, and four dispensaries in the state. During quarter three, our Jackson dispensary experienced temporary sales pressure resulting from new retail locations being added in the market and slowing the retraction of medical consumers, which is typical of any state with an impending recreational cannabis program. We saw a similar trend in Arizona prior to the commencement of adult use sales. With regard to the Columbus, Ohio dispensary, we are awaiting approval of our ownership transfer application from the Ohio Board of Pharmacy and expect to receive it before the end of the year. Under the new adult use statutes in Ohio, the cap on dispensary license per ownership group will increase to eight. Tier 1 cultivation facilities are granted three additional adult use retail licenses. We believe that when the law is finalized, our existing dispensary in Jackson and the pending acquisitions will give VEX access to a total of four dispensaries license to cater to both medical and adult use customers. Additionally, we should also have access to another three adult use retail license, providing us with the opportunity to operate a total of seven dispensaries in the state. Overall, with the closing of the pending transactions and the start of adult use sales in Ohio, we will be a larger, diversified operator with fully vertical, integrated footprints across two limited license states with significant potential. While our current focus remains primarily on our Arizona and Ohio operations, we are monitoring market developments in other areas of our joint venture portfolio and remain well-positioned to act on developments aligned with our strategic plan. We are particularly encouraged by the developments in Kentucky regarding a medical cannabis program and are awaiting further guidance on regulations and timing. On the whole, I am very pleased by our team's performance during a challenging period for consumer-facing companies. While the results on the P&L aren't what we would like to see on an ideal world, we're heading in the right direction and expect 2024 to be a very important year for VEX from both growth and profitability perspectives. With that, over to Trevor for a quick review of the financials. Trevor?