Vext Science Inc

Thank you for standing by. This is the conference operator. Welcome to the VEX Science first quarter and full year 2025 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 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then 0. I would now like to turn the conference over to Priyam Chakraborty. Please go ahead.

Priyam Chakraborty Thanks, operator. Good morning, everyone, and thank you for joining us today. WEXT's fourth quarter and fiscal year 2025 financial results were released earlier this morning. The press release, financial statements, and MD&A are available on CDAR+, as well as on the WEXT website at wextscience.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 findings. There can be no assurance that these forward-looking statements will prove to be accurate or that management's expectations or estimates of future development, 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 VEX other public filings that are made available on CEDAW+. And we encourage listeners to read those risk factors in conjunction with today's call. As a result of these risks and uncertainties, the development 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 disclosure and reconciliation, included in our press release disseminated earlier today, as well as the MD&A. Forward-looking statements made during this conference call are made as of the date of this call. VEST disclaims any intention or obligation to update or revise such information, except as required by applicable law. VEX 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 Oppenberger, Chief Executive Officer of VEX.

Thanks, Priyam. Good morning, everybody, and thank you for joining our fourth quarter and fiscal year 2025 financial results conference call. I'm joined today by Trevor Smith, VEX DFO. 2025 was a year of solid execution and meaningful transition for VEX. We made important progress across both of our core markets while continuing to build and organize the business for the next phase of growth. The key takeaway from the quarter and the year is that our strategy is working. As we've said consistently, our focus on owned retail gives us greater control over the customer experience and supports cash flow generation over time. We've been focused on building a retail-led platform, and in 2025, that focus translated into strong revenue growth, improving cash generation, and record operating cash flow. In the fourth quarter, revenue was 13.7 million, up 35% year over year, with operating cash flow of 3.2 million, driven by continued strength in Ohio. For the full year, revenue grew 43% year-over-year to 51.4 million, and we generated 11.7 million in operating cash flow, up 256% year-over-year. I want to address Q4 EBITDA directly. Reported Q4 EBITDA was negative 3 million, reflecting a $5 million non-cash impairment on one of our Columbus, Ohio dispensaries. The impairment is primarily driven by revised cash flow expectations following significant growth in competing dispensary accounts in the Columbus market since our original acquisition, and not by the store's operating performance, which remains at the state per store average. Excluding the impairment, Q4 adjusted EBITDA was 2.1 million. The underlying performance of the business remains strong and continues to reflect the effectiveness of our retail strategy. What stands out to me is that we delivered this performance while operating across two very different markets. Navigating both with discipline isn't easy, and I'm very pleased with how our team executed across both this year. Turning first to Ohio, Ohio continues to be the primary growth engine for Vax. and a key driver of our financial performance. 2025 marked the first full year of the adult use market in the state, with total cannabis sales exceeding $1 billion statewide. While the competitive landscape expanded meaningfully, with the number of licensed dispensaries increasing by nearly 50% over the course of the year, Ohio remains a highly controlled and structurally defensible market with a capped retail model, discipline rollout of new stores, and regulatory safeguards that support long-term pricing and margin stability. Within this framework, we continue to see a clear opportunity to scale our presence with high-quality retail locations. We made significant progress expanding our retail footprint in 2025, growing our Ohio retail presence from two stores to five operational locations. During the year, our Ohio retail operations accounted for over half of consolidated revenue, with sales increasing over 120% year over year. The majority of our stores performed at or above the statewide per store average. Looking ahead, our focus is on completing our build out to the eight store license cap. We expect to open our sixth location in the second quarter of 2026. We are particularly excited about this Fairfield location which is positioned in a high visibility quarter and includes a drive-through format that has already been well received at some of our other stores. We expect Fairfield to ramp efficiently and become a meaningful contributor to revenue and cash flow as it stabilizes. Beyond that, our seventh location is currently under construction and expected to be operational in 2026 with an eighth and final location anticipated to open in early 2027. As these additional doors come online, we expect them to further support revenue growth, operating leverage, and cash flow generation across the Ohio platform. As we complete the Ohio retail expansion, we are actively redeploying capital toward vertical integration and cultivation expansion to support that network. This includes advancing plans to expand cultivation capacity at our Jackson facility and further develop our manufacturing capabilities. Overall, we believe Ohio provides a clear path to scale with our existing license structure. Turning to Arizona, Arizona remains a mature and competitive market with continued pricing pressure driven by excess supply. In fiscal 2025, total cannabis sales in the state declined approximately 3% while average item prices were down seven to 8% year over year. Despite this backdrop, our performance remained resilient. Our retail locations performed above the statewide per store average for most of the year, supported by strong cultivation yields and disciplined execution across the business. That said, the fundamental economics in the Arizona cultivation market are clear and we are taking decisive action. As announced in March, we are transitioning to a lean retail first model in Arizona. This includes exiting cultivation through the shutdown and decommissioning of the Eloy facility during the second quarter of 2026. The property will then be marketed for sale with proceeds expected to reduce debt and further strengthen the balance sheet. Third-party supply will begin replacing Eloy output in the middle of the second quarter with the full transition reflected in the third quarter, which is a seasonally slower period in Arizona and aligns well with the timing of this shift. We expect that this shift will remove the internal sell-through constraints that impacted pricing and product mix in 2025. Going forward, Arizona will be focused on maximizing performance at our two Phoenix area dispensaries, while expanding our manufacturing and distribution capabilities through a more capital-light model, including third-party distribution and contract manufacturing. Arizona will be operated with a focus on cash generation and margin optimization rather than capacity investment. We also continue to evaluate discipline M&A opportunities with a focus on strengthening our position in core markets and maintaining flexibility to pursue opportunities that meet our return thresholds. As we look ahead to 2026, we are entering the year with a more focused footprint and a clear capital allocation framework. Our priorities are straightforward. Completing the Ohio retail build out, expanding cultivation capacity to support that network, and continuing to optimize our Arizona operations With capital directed toward our highest return opportunities, we expect to drive continued margin expansion, strong cash flow generation, and long-term shareholder value. Before I close my remarks, I would like to note last week's announcement from the DEA regarding the reclassification of state licensed medical cannabis at the federal level. While still early, this represents a constructive step that could support both efficiency and better access to financing for solid players in the industry, while further aligning federal policy with the framework already established across many states. Our view internally is that it will continue to be a state-by-state market, but this news was a long time coming and a step in the right direction. With that, I'll turn it over to Trevor for a closer look at the financials. Trevor?

Thank you very much, Eric. Overall, 2025 was a year of strong financial performance for VEX, marked by meaningful revenue growth and a significant step up in operating cash flow as the business scaled. Starting with the fourth quarter, revenue was $13.7 million, up 35% year-over-year and up 8% sequentially, reflecting continued contribution from our expanded Ohio retail footprint. Operating cash flow was $3.2 million, an increase of $1.9 million sequentially, with cash flow margin improving to 23%. This reflects strong underlying performance and improved conversion of earnings into cash as the business scales. Adjusted EBITDA in Q4 was $2.1 million, reflecting inventory accounting impacts related to pricing pressure, particularly in Arizona, which are expected to normalize as that inventory turns. Operating cash flow provides a clearer view of the underlying performance for the quarter. Turning to the full year 2025, revenue was $51.4 million, up 43% year over year. Growth was primarily driven by Ohio, including the consolidation of three additional dispensaries and the first full year of adult use sales, which more than offset pricing pressure in Arizona. EBITDA was $5 million for the year, representing an increase of $7.2 million year over year and a return to positive EBITDA. Adjusted EBITDA was 10.9 million, up approximately 21% year over year. The 2025 annual adjusted EBITDA margin was also 21%, compared to 25% in the prior year. The year over year decline in adjusted EBITDA margin primarily reflects pricing compression in Arizona, which reinforced our decision to exit cultivation in that market to focus on retail. Operating cash flow was 11.7 million, up 256% year-over-year. The 2025 cash flow margin also improved to 23% of revenue compared to only 9% in the prior year. The increase in cash flow margin reflects the shift towards a greater mix of retail sales, disciplined cost management, improved cultivation yields, and improving operating leverage as the platform scaled. There are a few items worth highlighting to help frame these results. In the fourth quarter, we recorded a $5 million impairment related to our Columbus, Ohio dispensary, including $3 million of goodwill and $2 million of intangibles. This reflects a balance sheet valuation adjustment and not the store's underlying operating performance, which remains at the state average. We also recorded an increase in our uncertain tax position to approximately $8.1 million at year end, following a restatement of prior periods to reflect previously understated balances. This resulted in the recognition of a UTP liability of approximately $5.5 million as of January 1, 2024, and a $7.7 million as of December 31, 2024, including the reclassification of approximately $5.3 million from income taxes payable and accrued liabilities, with a net incremental liability of $2.4 million recorded through opening retained earnings. I would like to highlight that this was a balance sheet-only adjustment. with no impact on cash, revenue, gross profit, net loss, or earnings per share for any period. The increase reflects updated estimates of potential interest on certain tax periods and resulted in higher interest expense in Q4 2025. We note these items remain under audit and subject to change. As Eric outlined, the DEA issued a final rule to reschedule certain state-licensed cannabis products to Schedule III on April 23rd. which included a recommendation for retroactive tax treatment under Section 280E. For context, Arizona operated as a medical-only market through 2020, and Ohio was medical-only through the third quarter of 2024. If enacted, we believe a substantial portion of the periods reflected in our own uncertain tax position would fall under the medical use window, and the recommended retroactive relief could result in a material reduction in the liability over time. The company will recognize any financial impacts of this rule, including any retroactive relief, when the tax authorities enact or clarify the recommendation by the DEA. No financial impact from this rule was recognized in the 2025 statements. Additionally, we made certain classification updates between cost of goods sold and operating expenses in consultation with our auditors and advisors. These changes had no impact on prior period results. and comparative figures remained unchanged. Taken together, these items are primarily non-operating and do not impact our view of the underlying financial performance of the business. Operating expenses increased approximately 31% year over year, primarily as a result of the previously mentioned $5 million impairment related to the Columbus, Ohio dispensary. Excluding that one-time event, operating expenses were relatively stable and actually declined as a percentage of revenue. On the balance sheet, we ended the year with approximately $5.1 million in cash and continued to reduce debt during the period, reflecting our focus on strengthening the balance sheet through ongoing cash generation. Reported working capital at December 31st, 2025 was negative, primarily driven by the $8.1 million uncertain tax position I just mentioned. IFRS requires this item be classified as current, even though the timing of repayment is uncertain. particularly in light of the previously mentioned DEA rule. Overall, the business continues to perform well. We are scaling our retail platform, beginning to see operating leverage, and generating strong and consistent cash flow. With a more focused operating structure and capital directed towards our highest return opportunities, we believe we are well positioned to continue driving these metrics higher in 2026. Thank you everyone for joining us for our fourth quarter and fiscal year 2025 financial results conference call. I'll now turn it over to the operator for your questions.

We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question today comes from Pablo Zuonic with Zuonic and Associates. Please go ahead.

Good morning, everyone, and congratulations on the free cash flow performance. I think that on market cap, that's about a 15% free cash flow yield. I mean, that's a very attractive number. Look, on the retail front in Ohio, I have two questions, one more macro about the market. Yes, we're seeing this growth in the number of stores that's ahead of the actual market growth in terms of sales, but that seems to be a bigger deal in the bigger cities than in the more, call it, you know, rural areas or smaller towns. And please correct me if I'm wrong, but I see you're taking this write-down on the Colombo store, but you're not adjusting or doing write-downs on your other four stores, right? So that's the first question, more at a macro level. And then the second question, if you can just give more of an update, on your five stores in terms of, you know, their competitive position. I know you're talking about you're performing in line or above the market average in terms of revenue per store, but as we know, the market average has been coming down, right? But your retail sales went up, so I guess they are outperforming. But if you can just give more color about the five stores in terms of competitive landscape. Thank you.

Yeah, let me try to frame that a little bit for you, Pablo, and good morning. So for us, the Columbus store is the one that had the biggest competitive thing. I think your, your assessment of the market's correct. You know, that that's where people tend to gravitate towards. And obviously the stores that are not in those situations are not getting competitive pressure and we don't have any, uh, you know, impairment related to it period. The other thing that also is, you know, the Columbus store was something we didn't buy as part of a normal negotiation. It was part of the acquisition of our partner buyout in Ohio. That was something negotiated quite a while ago before he started seeing the landscape. So I think that was part of it, too, is, you know, as things develop, you get more clarity to it versus also impacted the Columbus store. So we think that that's going to continue to go and continue to develop. And, you know, those stores will get all built out and get caught up and everything starts to shift. So we've always been focused on, you know, as we said, of selling our product to the stores. So we like the rural stores, we like those locations, because it makes it a little bit easier for us to, you know, reflect solid market performance. So that's how I'd answer that question. I don't know if Trevor would give you any more color on the per stores, but when we say in the reports that the majority of them are above state averages, the ones that are lower than state average, we still get a good return on our investment and return on assets is how we look at it. We don't really focus as much on the top line. We know that the market likes to look at that. We look at what cash we're generating through the store and what profits.

Thank you. And then just to follow up on the three next stores to open, I know you said Fairfield in the second quarter sometime. That was supposed to have opened, I think, in the fourth quarter last year. If you can just give more color about the delays there. And then on stores number seven and eight, that's Columbus and Cincinnati. I mean, traditionally, you focus, again, more in the smaller towns, rural areas, right? And you're seeing more competition on the bigger cities. So should we be concerned about store number seven or number eight? And is there room or leeway to relocate those stores? Thank you.

Okay, so the issue with the store in Cincinnati that we did plan on opening in the late year is, candidly, I didn't realize that asphalt companies close in Ohio during the winter and you can't pour asphalt. And that's really the delay there is we're still getting pavement put in and the asphalt laid down in that location. So you're very weather dependent on that. So that's what's been the biggest delay there. The store's ready to go. Everything's in. We cannot call for inspection from the state until we have the certificate of occupancy. And we cannot get the certificate of occupancy until the paving's done. They've been working on it, finishing it. We expect in the next couple weeks that'll be done, and we can call for the state inspection. That store, based upon where it's located, it's in a prime area, as we've talked about, and has a lot of traffic area. So when we're looking at a major, you know, being in a bigger market like we've talked about, If we're locating the store, not something we bought, we look at what the traffic patterns look at, what the surrounding areas look like, and if they are preventing dispensaries from going in. So on Columbus, that's what we're doing on the second story. It's right off of a major belt on the freeway. It's in a good community area. And one of the townships right next to it has got a moratorium on dispensaries. So those people are traveling. We're going to be a convenient travel for them. And as I said, it's off of the Beltway. In that city, you'll have a drive-through access to it. Something we couldn't do on our existing Columbus store, that wouldn't work. Same thing on the second Cincinnati store. Depending on what the zoning looks like, it potentially could be adjacent to our Paul Cecala, retail similar in Cincinnati now with the large retail chain that we're working with there so we're trying to see if we can't put another store on that existing property. Paul Cecala, or the other community that we're looking at and working with trying to get through zoning there's been the challenge. It's on a major thoroughfare and has good traffic access and good pattern, and they've limited their license. So when you say Cincinnati, it's really like a suburb of Cincinnati. So we think those two stars are going to perform well, depending on where they go within those three locations.

Thank you. Let me just have a couple of more, if I may. One, just bigger picture regarding Ohio. I think in the third quarter last year, pre-rolls were allowed, right? And I think the purchasing limit per consumer was also increased. Have we seen a pickup in the market? And I guess to some extent, we're still awaiting the adult use rules, right? It's still called non-medical. If you can just give some more color in terms of a bigger picture on Ohio in that way. Thank you. I'll follow up with another one.

Yeah, I think you got some clarity on some of that stuff, too. You know, surprisingly, the pre-rolls haven't taken off for us like they have in other markets. People are still buying the flour, you know, in that realm. Edibles still do well in Ohio comparative to, like, Arizona for us as a percentage. So, you know, different methods of consumption. As far as the rules, I think there's got a lot of clarity coming out. The state's got some new rules coming in with labeling and stuff along those lines that take effect all the way in September, changing how you do the product setups and some clarity there. So we're still seeing that, and they're changing some of the dosing that you can buy on adult use and what the quantities are. We're now doing, you know, eighths in that market instead of the tenths. like we were doing in that market, so that's been a switchover for us, which has been nice to get that so it's a little bit easier on the business. Some of those things are coming in. They've at least lightened up the advertising a little bit. We can put a sign up on this store, that type of stuff, and we're doing all those things. The biggest thing we're doing in Ohio, Pablo, on the existing stores is getting the drive-thrus into them of where we can. So the Jeffersonville stores drive-thru should be opening any day. The Athens store is under construction. We hope to have that open in a few, in the next month. And we think that's really the key is that convenience, you know, popping that consumer in and out of that store as quick as we can. and align the delivery method to them to be more traditional.

Thank you. And one very last one. I mean, obviously, we only had the final order from the DOJ just come out last week, right? So, I know it's too early to tell a lot of things. But in your opinion, are M&A discussions picking up or no change? And I'm referring to the comment you made, right, that you may look at more stores in Arizona and perhaps entering other states, or even, you know, Vexta partnering with another company in some form of merger. But what color can you share about your expectations about how M&A plays out, given all this positive backdrop on the regulatory front at a federal level, national level? Thanks.

I think that a lot of places, you know, a lot of people have these uncertain tax provisions and stuff along those lines. And you look at some of the concentration of states that they were selling into. So, you know, if that Department of Justice recommendation into Treasury becomes law and retroactive, then you are going to have a lot of people sitting with a lot of cash on their balance sheet. And I'm sure that they'll start looking at, you know, ways to deploy it. What I think will be different, though, on this one, Pablo, is that people will be looking not at unreasonable multiples and be looking at more of operational type of things versus in the past where they were trying to scale up to size and top line. They'll be looking at where contribution can be and how much are you going to take on a drag of past sins, as I'd call them, on their balance sheets of what they're acquiring. So I think you'll see some of that. That'd be a natural to me. I think it'll take a little bit of clarity. You know, I don't think anybody's going to want to jump out and say, okay, we're going to get retroactive without the IRS saying that. So I think that's one issue. I think from our perspective, and again, who knows, but, you know, Trevor and I, we talked in the past, you know, we're actively doing audits with the IRS on our our stuff you know and have audits open through 2023 as we've disclosed previously and talked about you know those are always in negotiation and going back and forth of what's allowable what's not allowable and it's a long process we're hoping that there be more clarity to the process and that you know the agents will start to get some clarity internally so it's not like you know consistently renegotiating. You know, we're dealing right now with three or four different agents on the same files because they switch off and stuff like that. So that's where you get some of this inconsistency. And that's really challenging. You know, as Trevor mentioned in our notes, you know, that's why we end up with you know, having to do a restatement and stuff along those lines, we get more clarity as we go. Hopefully this will help with that too. So I see that's a real positive. I see the other side on that as a positive and absolutely you'll see it more M&A activity and, you know, whether you are acquiring, you know, merging or doing whatever you say, you know, there's going to be more capital available and it'll be a different look this time. I think it'll be more more freedom to the shareholder and not this large buy at all cost type of thing.

Right. Thank you. That's a good caller. Thank you.

The next question comes from Paul Penny with Partner Capital Group. Please go ahead.

Thank you. Hey, Eric. Hey, Trevor. Good morning. Good morning. With the cultivation life strategy in Arizona, what are your long-term and near-term margin expectations? And specifically, what is your average cost to produce these days per pound? And compare that directly with what does third-party biomass spot prices go for? What's that variance or margin today?

Well, without giving you specific numbers, because we don't really do that and haven't historically done that. As Trevor's mentioned, you know, and Trevor and the team have done a really good job on this. I want to make sure everybody understands what happened in Arizona. So the yields continued to go up. The quality continued to go up. They were really doing a great job, and that's really held us into this position for where we were for the last couple of years as we watched the market continue to decline in Arizona. We really didn't expect it would continue to decline, but it did. So as it declined, we're producing it about what we consider like an average indoor grow cost somewhere in the mid 300s. I think that's pretty realistic across the market and that. And then once you do an all baked in on a return on investment and stuff like that, you're in the 800 range to 850, 900, depending on how your cost of capital is as a company. I think that's pretty realistic and think anybody telling you different i'd like to see their books so that seems to be where that falls into place so what happens is in the marketplace like arizona with the overhang it's a typical supply demand thing on the wholesale thing they're trying to move volume so there's people trying to make payroll and they will discount basically to cash or below cash um recuperating costs that are five months old in what they spent on cash so from our perspective that marketplace tells you that you don't really want to be in that production thing as it's going through its process and the way we structure our asset base it's more lucrative for us to redeploy that capital so that was the decision that was made on that and again it's not a reflection on what the quality was or the cultivation it's It's a reflection on the market. So we go to market believing we don't set the market, we participate in it. So we look at what's the opportunity in the market and where can we fit in. So that's where we fit in. You basically have to get out of the cultivation business.

That's great. I understand. Are there any interesting dispensary acquisitions out there that make any economic viability? I know expectations have been lofty in the state despite the challenges. Are you seeing any change there?

Not really. I mean, I think the value of the license is still really there. And candidly, Paul, as you look at it, and if you're vexed, and you look at your value of your license, we've always said that the cultivation is almost like a negative. So it's a drag. So let's say your cultivation license or your dispensary license is worth X. If you have a cultivation, it's X minus Y. So you really have to deal with that cultivation to unlock your value. as that market consolidates because supply is out there. So if you're an acquirer, why would you want to do that, have extra supply? Now you have to deal with it and what the liquidation is and everything like that. Fortunately, the way we've done our assets, You know, we're going to deal with our cultivation. So we think that that should give us a premium on what happens in Arizona. And we're pretty optimistic that our results from Arizona go up both on an EBITDA basis and on a cash flow basis. So that's kind of our impression. We've become a lot more nimble in the market and a lot more flexible. And if you're not going to have tremendous scale, you better be damn nimble or you're not going to survive it. So that would be my color. I think Trevor's got some, you know, some color on that, too. I'd like his input on this question.

Good morning, Paul. Yeah, the decision to close Eloy was not an easy one. The team did just such a hell of a job performing and improving performance over time. And we saw even a pathway to continue to make, you know, some capital light investments to further improve performance. But at the end of the day, the macro is too much to ignore. And the redeployment of capital into more creative opportunities, particularly as Ohio continues to scale and expand as we've disclosed. It was just too much for us to ignore, and so that's why the decision was made.

Totally get it. Very smart, actually. And then just a couple of house cleaning items in Ohio. Do you expect any other impairments, just to be clear, in the state? And then secondly, of the eight stores, how many do you expect will have drive-throughs?

No, so you've got to be totally clear, as we mentioned in the filings, no additional impairment is expected in Ohio or any other location. This includes the Arizona licenses. No impairment was taken on Eloy. We'll have more updates as that sale process continues, but no reason to expect any impairment there. I believe the drive-thru number, only the Columbus store that we took the impairment on is not able to have a drive-thru, which is Certainly impacting the future cash flow forecast from when it was originally acquired and perhaps a driving force towards the impairment we took in Q4.

Great. Thanks, guys. Good work. Thanks, Paul.

Once again, if you have a question, please press star then 1. The next question comes from Josh Felker with CB1 Capital. Please go ahead.

Hey, good morning, guys. Congrats. You're the front performance there. A few questions. I'll stick with Ohio to start. You mentioned last quarter a few ongoing pilot programs to boost operating efficiencies. Just wondering when will we know the results of those programs, and do you now have any clear line of sight on potential benefits derived from those programs yet?

Trevor, that's probably yours. Yeah, so we mentioned the sharp improvement in yield. I think you saw that in the Note 6 of the financial statements under biological assets. We disclosed grams per plant. That went up significantly in Q4. We're happy to report it went up again, high single digits again in Q1. And we're expecting further increase in yield. It's going to be the biggest driver. That is going to fuel supply in the market and any potential weakness from additional stores opening before we can get ours open. It's going to be offset by additional wholesale because Ohio is very much the cultivation-led business. We're trying to pair to retail. Anytime cultivation gets ahead of retail, we have that wholesale channel to offload and then obviously want to get our own retail back in to recover that additional supply. So I'd say that's the biggest one, and then the other pilot programs to drive performance in Ohio are certainly going to be those drive-thrus. So really excited about the Athens drive-thru in particular, as well as the drive-thru in the new Fairfield location once it gets open. Those are two Athens already is a great performer, and then Fairfield is expected to be great even ahead of that. So we think those, in addition to cultivation yields, are going to be the biggest performers for Ohio on 26th.

So fair to assume a little less than a pilot program, a little more of an operating strategy that you've already cleared and have already approved of, understood. Trying to break down Ohio revenue composition going forward. As you just noted, Trevor, obviously the wholesale market is going to be a larger part until those doors come online. You noted last quarter the increase in internal Ohio supply will boost wholesale sales until your new stores come online. Just interested in what percentage of the existing facility is sold in the wholesale market today. And then with the Jackson expansion plan, I'm just wondering, once that's fully online, how much additional capacity do you think you'll possess beyond what will require to service your own aid doors?

To give and take. I hate to dodge your question. I'll give you a straight answer, but there's a lot of assumptions. How quickly does the yield come up? How quickly do the stores come up? Our view is we We always are going to try to maximize that yield. As the yield comes down, we look for the distribution internally, how are the stores doing, the drive-throughs, the new stores. So it's something we actually, as a leadership team, stay on very, very close and make, say, quick decisions, but certainly as close to real-time decisions on pricing and availability for wholesale as many times as we can for the state of Ohio. So it's going to be a give-and-take through 26. the additional expansion plans also need to be approved by the state so I'll wait to comment on additional capacity but we certainly have line of sight and to continue to growth in that market and our overall strategy of trying to stay 70 80 percent vertical has not changed just interested in how no

cultivation impacts Arizona strategy. I know you still have the manufacturing operations inside of Eloy. So it still sounds like you'll run those operations and it still sounds like you'll service those manufacturing-derived segments. Just wondering, is all of that correct? And those segments are typically higher margin versus flower-focused segments. Can I correct that understanding for Arizona?

Yeah, Josh. Yeah, I think you're Clear on that. So really, the manufacturing that we're doing in Arizona is we have some, you know, relationships with people that we do manufacturing for. And I think we'll continue to do that. And, you know, it's just a real light and light touch. So the expense structure is not that heavy on it. And it kind of gives you the insurance on the back end. If cultivation was to change, we do have some cultivation assets in that area that could match demand in those stores if we needed it. So if there was a fire or some natural disaster, we could stand up cultivation relatively quick and not have a heavy cost structure. So it was more of the insurance to it too. So that said, but we're going to be in a market So the way we really look at it, Josh, is we think that the space that you have to look at in this industry is not necessarily marketing, but merchandising. So you're really merchandising your product. It's not like I'm trying to create a demand. I'm trying to move that demand through a retail channel as quick as I can, as efficiently as I can, and even line up your manufacturing to back it. So that's why we don't see it like we're trying to entice somebody to use cannabis as far as your marketing. You're more in trying to merchandise it like traditional consumer products or something along those lines. And then we think there's a distinction and that's really the way we try to go to market on the retail side. So with that said, that's why we, you know, looked and said, okay, the manufacturing makes sense because we're really doing a contract on the OEM side. and white label, and we do that efficiently, and there's a need in the marketplace because there's so much capacity on the cultivation side that it'll line up, and you've got your retail store, you can do some of that through, plus you have the alignment, and now you switch, too, because you become more of a shelf space for somebody that's doesn't have that distribution channel, so you can really line it up. So we think it's going to be significantly improved for our position and for our consumer base when we're merchandising to them and gives us a lot more flexibility. That would be my comments. I think Trevor might have some other color on it.

Yeah, just to clarify, Josh, manufacturing is in a facility in Phoenix. So it will not be impacted by the Eloy closure other than, you know, obviously the trim being produced at that facility won't be available for processing, but the fact we're closing the facility due to oversupply tells you we're not concerned about acquiring input material for the manufacturing team.

Yes, love it. And Apollos, I'm going to sneak this in as a third question. I'm just wondering how large is the competitive advantage Are drive-thrus in Ohio, are competing dispensaries around you also equipped with drive-thrus, or do you think you'll be able to capture some of those consumers by having that offering when other dispensaries don't?

The Columbus one on the main drive, the competing dispensaries that are really close to it, one of them has a drive-thru. Michael Prast- A couple of the others don't so you're kind of in a residential area and all street parkings of pain that kind of stuff is the problem with that one josh and you can't really fit it in. Michael Prast- If you could send stuff through a pneumatic tube or something along those lines, you can probably get away with it, like a bank. Michael Prast- But that's not allowed at this point in time, so you really can't configure the other source. Right now are more of the rural stores and it's a big benefit, you know, but it's not a benefit because competitions there doesn't have them. You have less competition and less density, right? So it's more of you're hitting somebody with the convenience factor and stuff along those lines. In Arizona, we did that with like walk-up windows inside of the dispensary. So you're technically getting your cannabis in the dispensary, but you're really going through a window so you can bypass the reception, can bypass all that check in, you know, like the speedy window or speedy weedy, you know, that type of concept. Then when you get to Ohio, we think the drive-thrus really are big. When we get to Cincinnati, we see that's going to be really big because of, as Trevor's mentioned before, the unique part of that store right now is it's at a large area with a lot of traffic, and we're in an area where there's a large box... anchor that sees a lot of traffic so we think just by geographics and being close to it if you have a convenient in and out way you get that convenience purchase and we think that's a good good purchase to have and that's an easy way to get those people passing through that that drive-through super really appreciate the color congrats in the quarter thanks all thank you

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