Verano Hldgs Corp

Good day and thank you for standing by. Welcome to the Verano Holdings Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Juliana Pateri.

Thank you and good morning, everyone. Welcome to Verano's Third Quarter 2021 Earnings Conference Call. I'm joined today by George Arkos, Chief Executive Officer and Founder, Brian Ward, Chief Financial Officer, Darren Weiss, Chief Operating Officer and General Counsel, and Erin Miles, Chief Investment Officer. During this call, we will discuss our business outlook and make forward-looking statements which are based on management assumptions and expectations. Actual events or results could differ considerably due to risks and uncertainties mentioned in our filings with CDAR, including our financial statements and MD&A for the fiscal year ending December 31, 2020, and for the three and nine months ended September 30, 2021. In addition, throughout today's discussion, Toronto will refer to non-IFRS measures that do not have any standardized meaning prescribed by IFRS, such as EBITDA, adjusted EBITDA, and free cash flow. These non-IFRS measures are defined in our earnings press release issued earlier today and are available at investors.durano.com, which also includes the reconciliation of these measures to the most comparable IFRS financial measures. Please note the financial information we are reporting today is on a pro forma consolidated basis that includes the AltMed companies for the nine months of 2021, as if the acquisition closed on January 1st, 2021. The financial statements we filed on CDAR are in accordance with IFRS and account for the ultimate companies beginning on February 11th, the actual date of the acquisition. As a result, the IFRS numbers filed with CDAR will differ from the pro forma consolidated numbers reported today. Lastly, all currency is in U.S. dollars unless otherwise noted. I'll now turn the call over to George. Please go ahead.

Good morning and thank you everyone for joining us today. I'll kick off the call by sharing an update on our business and highlighting key areas of focus, followed by a deeper look at some of the most significant opportunities for Verano moving forward. After that, Brian will provide highlights from our financial results and discuss our capital position in more detail. Today, we reported results from another strong quarter, underscoring an extremely active and successful three months for our company. We continue to invest in both organic and inorganic opportunities that position the company for long-term, sustainable top-line growth. Additionally, our proven ability to operate the business efficiently has allowed us to continue driving bottom line growth even as we scale, as evidenced by our industry-leading margins and profitability. I am so proud of the many Verano team members across the country and wish to publicly thank them for their incredible contributions. I believe we employ some of the industry's most dedicated and diligent professionals, and our ability to leverage this talent has contributed to our performance. I am pleased to report a decisive improvement in margins, while maintaining steady top-line performance in the quarter. In Q3, we continued our core focus on people, process, and product, integrating and refining operations across our footprint. We continue to invest in our business, adding accretive assets to our platform through M&A, while expanding cultivation capacity nationwide and driving organic growth by opening new retail doors. In addition, we believe efficiencies in production driven by our investments in automation will help build incremental value going forward. This was another productive quarter with tremendous executional pace. We maintained positive free cash flow while self-funding capex and improving margins. Strong fundamentals remain a central theme in the Verano story, which we feel are now more important than ever. We remain intently focused on the bottom line and operating an efficient and profitable business as demonstrated by our EBITDA growth in the quarter. Turning to the results from the quarter, we achieved revenue of $207 million, representing 106% growth year-over-year or 4% growth quarter-over-quarter. Given the complexity of evolving market dynamics, we believe there was an imperial impact to revenue in the quarter due to several challenges, which included regulatory setbacks across Pennsylvania, Massachusetts, and New Jersey, severe weather events across the East Coast impacting Florida, New Jersey, and Pennsylvania, notably shutting down one of our highest volume dispensaries in the Philadelphia market for over a month, and the shutdown of telehealth in Florida slowed new patient growth, which overlapped with soft summer months in snowboard states of Florida and Arizona. Fortunately, we have already seen this trending back in the right direction. With respect to our key performance metrics from the quarter, we achieved significant margin expansion. underscored by a 64% gross profit margin, which equates to $133 million, or 33% growth sequentially. In addition, we generated an industry-leading 54% adjusted EBITDA margin, or $111 million, up 36% from the prior quarter. On an unadjusted basis, we reported 52%, or $107 million. Going forward, with uncertainty around the timing of several significant externalities, We anticipate some fluctuation in these metrics, but remain confident in our ability to operate and grow the business with a low 40s target for our adjusted EBITDA margin profile. In the current environment, strong fundamentals in financial health are more important than ever. We maintain flexibility to position the company for success ahead of market growth, given the conservative nature in which we evaluate our capital needs. Remaining unencumbered by sale leasebacks is a signature focus of the company. as well as responsibly tapping into the debt markets only to the extent necessary to support strategic growth initiatives. Last month, we announced the upsizing of our credit facility by $120 million at one of the best rates in the industry at a non-dilutive basis, with the opportunity to upsize by an additional $100 million. We are proud of our responsible management, and we will continue to be disciplined stewards of capital. Next, I want to point out some recent operational achievements. One item that I'm excited to highlight is the expansion of our executive leadership team, including the recent hiring of Destiny Thompson as Verano's chief people officer. The company has sustained tremendous growth this year, and we look forward to Destiny's contributions to future successes and value creation for our employees and shareholders by further integrating a people-first culture across our organization and expanding our already impressive talent pool. In addition, longtime Verano veteran Darren Weiss recently stepped into the Chief Operating Officer role. His work will prove critical given our company's emphasis on operations. Moving on to M&A, we believe the execution of our acquisition strategy has helped set the tone for broader industry consolidation and will remain inquisitive when and where it provides accretive value to the Verano platform. To provide a brief recap of our M&A activity, we closed on the Mad River Remedies transaction in July maxing out our Ohio footprint at five stores with one of the state's highest volume dispensaries in Dayton. We closed on the agrikind and agronomic transactions early in the quarter, unlocking vertical integration and enhancing our dispensary footprint in Pennsylvania. We announced the Sierra Welles acquisition in July, which will expand our Nevada supply chain and will provide us with strategic retail coverage in the northern part of the state with dispensaries in Reno and Carson City, plus a 10,000 square foot cultivation and production facility in Reno. Last week, we were very pleased to announce three accretive acquisitions in Connecticut, including two active dispensaries and one of just four licensed cultivation and production facilities in the state. At 217,000 square feet, the state-of-the-art cultivation facility has propelled CT Pharma to establish a dominant share of the market today and positions Verano for long-term growth by entering Connecticut with vertical integration ahead of the state's forthcoming adult-use transition. Since Q2, we have opened or added nine new dispensaries. including closed and pending acquisitions, broadening our footprint in Pennsylvania, Florida, Ohio, Nevada, and Connecticut. In West Virginia, we anticipate opening our first store by the end of the year in a highly populated college town. Also under development is a state-of-the-art cultivation and production facility in West Virginia. Following this activity and the completion of pending acquisitions, we will have 90 active dispensaries and over 1 million square feet of active cultivation and production capacity nationwide. To summarize, this was a successful quarter with respect to foundational development. We believe in the top-line potential of our platform. We remain principally focused on bottom-line performance as a means of value creation for our shareholders with confidence that top-line revenue potential will come as a result of our foundational strength and as both internal and external catalysts materialize. 2021 is a defining year for us on many levels. Since taking the company public last February, we laid out our strategies to drive sustainable top-line growth while at the same time delivering industry-leading margins. I am proud to say that we have been successful in executing on our vision. Looking ahead, we anticipate that with continued investment in infrastructure, including people, processes, and products, and holding steadfast in our commitment to our strategy and broader mission, we will realize the full potential of this organization heading into next year. With that, I'll turn it over to Brian to review our financial results in more detail.

Thank you, George. To begin, I'll review financial highlights from the third quarter 2021 and then move on to discuss our balance sheet and capital allocation strategy. Please note the financial information is reported on a pro forma consolidated basis as if the Altmed acquisition had closed on January 1st, 2021 versus the actual closing, which took place on February 11th, 2021. First, however, I'd like to provide a brief update on our efforts to convert over to U.S. GAAP, which has been ongoing since the second quarter. My team continues to make progress on the conversion, and we are on track to report under GAAP for the fourth quarter of this year. This conversion will better position us to uplift to a U.S. stock exchange, and it allows us to report under a more familiar framework, which should clean up much of the accounting noise IFRS standards bring to cannabis company operations. Moving on to financials, I am very pleased to report revenue of $207 million, representing 4% sequential growth and 106% year-over-year growth. Revenue from retail and wholesale was 82% and 18%, respectively. As George highlighted earlier, both retail and wholesale revenue were impacted this quarter by industry-wide challenges, including regulatory setbacks, soft summer sales in warm-weather snowbird markets, and weather-related hurdles across multiple states, including severe flooding that closed one of our top-performing Philadelphia-area stores for over a month, which had a material impact to the top line. On the wholesale side, we continue to invest in our cultivation facilities. With the Sierra Well and Connecticut deals, we will hold over 1 million square feet of active cultivation and are currently building out further capacity in Pennsylvania, Florida, Nevada, Arizona, and West Virginia. Additionally, our Massachusetts facility recently came online, giving us vertical integration in 10 of our 12 active markets pending the close of acquisitions. We anticipate our retail wholesale ratio to begin to balance out via growth in the wholesale vertical, stemming from new facilities coming online, investments made in cultivation expansion, and increased focus on brands, products, and innovation across our footprint. Though our significant footprint in Florida also contributes to the retail imbalance. Moving on, gross profit for the third quarter on an unadjusted basis and excluding the impact of biological assets was $133 million compared to $100 million in the prior quarter and $69 million in the prior year. As a percentage of revenue, gross profit was over 64%. Our gross margin results represent the realized benefit from investments made across our cultivation footprint. For example, after our agrikind transaction in Pennsylvania closed and gave us vertical operations, our gross margins in the state increased by over 50%. SG&A expenses were $32 million in the third quarter, or 15% of revenues, down from $53 million in the prior quarter, or 27% of revenues. While we continue to maintain a focus on expense management, this decline does not signify any diminishing investment in our people and sales and marketing efforts. For example, sales and marketing expenses were roughly flat and salaries and benefits were up about 45% versus the prior quarter as we invest in our teams ahead of growth. The main driver behind the decrease in SG&A expenses as a percentage of revenue was a change in accounting treatment of earnouts for management teams involved in Verano acquisitions, which now run through our balance sheet as opposed to our income statement. Looking ahead, we anticipate SG&A as a percentage of revenue to increase, especially as we continue to invest in top-tier talent across the organization. Net income, excluding the impact of biological assets, was about $15 million in the third quarter versus $32 million in the second quarter. Adjusted EBITDA was $111 million or 54% of revenue for the third quarter versus $81 million or 41% of revenue in the prior quarter and $56 million or 55% of revenue in the prior year. We are immensely proud of our EBITDA margin profile as this is reflective of the company's operational success. Turning to the balance sheet, we ended the quarter with $57 million in cash and cash equivalents. In October, we announced the $120 million upsizing of our existing credit facility agreement with one of the best rates in the industry on a non-dilutive basis of 8.5%. We continue to take on debt in measured amounts with the goal of improving upon terms and rates to decrease our cost of capital. This $120 million upsize provides further M&A optionality as we continue to evaluate targets to both broaden our footprint into new markets and deepen our footprint in current markets. We remain unencumbered by sale-leasebacks and actively manage our cash flow and feel well-positioned with our continued cash generation. Cash flow from operations for the third quarter was $68 million and free cash flow was $35 million. We take tremendous pride in remaining cash flow positive and self-funding our CapEx. CapEx spend for the quarter was $33 million, bringing the year-to-date total to $96 million. We expect to close out the year above $120 million in CapEx as we invest back into our business. To recap, I'm incredibly proud of our team for executing during another quarter of growth marked by continued acquisitions and integrations. We remain committed as an organization to delivering industry-leading profitability while growing the top line. With that, I'll turn it back to George for some closing remarks.

Thank you, Brian. From a macro viewpoint, we are encouraged by the most recent dialogue around legislation concerning federal legalization. Regardless, as I previously emphasized, we believe in our long-term plans to drive growth within the current regulatory environment, but also recognize the incremental opportunity that federal legalization or some form of amendment, such as the Safe Banking Act, may provide. We're excited to be a part of the conversation surrounding such transformational reform, which presents an abundance of potential benefits to the cannabis landscape in the U.S. As we look at the trajectory of the business to close out the year, I firmly believe in our top-line potential. However, given the shift in timing of several anticipated growth drivers, we feel that it would be imprudent to reiterate or update specific revenue guidance metrics at this time. That said, we remain optimistic about long-term revenue growth and want to again reiterate that we believe we can achieve adjusted EBITDA margins in the low 40s. Thank you again for joining us today. I am incredibly proud of what the Vrano team accomplished this quarter in many respects, but particularly in delivering industry-leading margins. We look forward to closing this transformative year and driving further business momentum heading into 2022. Operator, you may now open the line for Q&A.

At this time, if you would like to ask a question, press star 1 on your telephone keypad. Again, that is star and the number 1. Your first question is from the line of Camilo Leon with BTIG.

Thanks, and good morning, everyone. Really nice job on the margin recovery there. Brian, I'm wondering if you can help maybe parse out some of the impacts that happened in Q3 and maybe give us some insights into how much the Philly store closure helped and maybe it's better to go on a state-by-state basis or just on an aggregated basis. What do you think the impact to your overall top line was in Q3 from some of these unforeseen sort of delays and impacts to the business?

Sure. Good morning, Camilo. Thanks for the question. You know, as we think about the third quarter, there were a couple headwinds that we faced. Massachusetts on the cultivation side was certainly one. The closing of our high-performing store in Philadelphia for over a month did have a material impact. And then the other key item would be New Jersey. And that's something that we're focused on. We're ready for adult use. And, you know, we really don't operate the business on a quarterly basis. We're excited about where we're headed. And I think, you know, really on the margin side, we proved that we've got a really efficient quarter and efficient business. So, That's how we really think about the third quarter. We're excited about it. But some of those headwinds I think will naturally kind of tailor off over the coming months.

Okay. And maybe just following that line of questioning, I think you said in the preparatory remarks, and maybe George did, that there was some improvement already being felt in some of those headwinds. states recovery, if you will. Maybe if you could just talk to that and what kind of, you know, rate of acceleration you're seeing. I think you're probably referring to maybe the Arizona market in Florida, but any sort of context would be helpful.

Yeah. So in Florida and Arizona, we did see some seasonality. I think, you know, as we sit here today in the middle of November, we've seen some of that rebound. And, you know, we're certainly excited about both of those markets, especially with that seasonality. We've had a lot of questions around Pennsylvania and Florida and discounting. And, you know, we certainly have been extremely proud of our offerings and our product differentiation in those markets. We will continue to, you know, be competitive where it makes sense. But I think as we stand today, I'm very excited about how things have really shaken out and, you know, the prospects ahead.

Got it. And then my final question is on Florida. Since you brought it up, might as well go there. More strategically thinking about how that market is evolving from the competitive landscape and the seemingly continued sort of promotional cadence that exists in that market. Can you talk about, and maybe George would love your thoughts on this too, can you talk about the alt-med position in the net market from a price perspective? and any intent to expand the premium end of their product offering so that you're actually taking price up. I think the average price there in new stores is about $50 an eighth. I'm wondering if there's any intent to improve the premium product offering and raise price in that market.

Thank you. Good morning, Camillo. This is George. Appreciate the question. And yes, we actually just did a limited reserve launch on some flour for move at a much higher price point, sold out of all of that product, which was obviously the intent. We also will be launching some Verano genetics there soon, again, at a higher price point. That has been our business model for the past seven years. We're proud of that fact that we did very well in that category. So that will be our plan in Florida. For us, heavy discounting is not something that works for us because we have a high-quality product, and there's no such thing as a free lunch. If you want to move your top line, you sacrifice your bottom line, and that's not our intent.

Got it. Great to hear. Thanks, and I'll turn it over. Appreciate it. Have a great day.

And the next question is from the line of Russell Stanley with Beacon Securities.

Good morning, and thank you for taking my questions. First, around Illinois, just wondering what your latest views are there in respect to the 185 retail licenses, how you're thinking about

when those might get issued and translating into uh to wholesale demand and and i guess second to that what what opportunities there are for growth in the interim good morning russ uh the 185 stores so unfortunately they're minor litigation as expected we're hoping that they come out of that process here soon because the state needs it right i mean there should be a three to four billion dollar market but you need access in order to achieve those types of numbers Being one of the largest wholesalers in the state, we're really looking forward to those stores getting online. Fortunately, there's a good chunk of the social equity participants that are moving forward with real estate plans or building out their facilities. We are helping out a number of them to make sure they're designed accordingly and that they're successful. But we don't know on timing yet. When something is in the litigation process, your guess is as good as ours. We're eagerly anticipating them, and we're hoping that next year, you know, by next summer, we start seeing some stores come online and see some growth in the Illinois market. In the interim, we're going to keep doing what we do best, which is, you know, continue our wholesale strategy, continue to push our own retail stores, and try and grow the business in our home state.

Got it. And then just moving on to... Pennsylvania. I think you highlighted the margin improvement you saw in this state with AgriKind. And just wondering, is that a full contribution there? Or do you think there's an additional upside heading into subsequent quarters? And more generally, how the integration of multiple acquisitions in that state is playing out?

So there's definitely additional upside in that state. That facility wasn't fully operational when we took over. So We'll see the benefit of that heading into next month and Q1 of next year, which will give us additional biomass. More importantly, it will give us some of the genetics that we look forward to bringing to the market and introducing the Verano brand to continue to push our wholesale strategy in that state. We also have additional stores opening through – hopefully we have through our different entities about 18 stores open by next summer. We are working on almost all of them, and we should be opening another store here pretty soon. So we like Pennsylvania, and we expect further margin improvement and a stronger business there in the future.

Excellent. Thanks for the color. I'll get back in the queue.

Your next question is from the line of Scott Fortune with Wealth Capital Partners.

Good morning, and thanks for the question. Can you talk about a little bit of the brown positioning? You've done a great job with that positioning from a premium perspective, but can you provide color Some of the key assets or markets where you can continue to move that premium brand up as we look out into 2022 here?

Appreciate that. I mean, it's something that we do in every market. It's not something that, you know, it's just being launched in Florida because it wasn't an original historical Verano entity. We're also going to be doing that in Arizona. We'll be doing something similar in Connecticut in the future after we close on that acquisition. But for the most part, every other state that we operate in, we already have a premium offering.

Okay. And then when you look out west, kind of your west exposure here, you know, with Arizona and Nevada, we've seen a lot of different pricing pressure with a lot of those states, kind of. Can you help us understand what we're seeing, that pricing pressure starting to stabilize a little bit, or kind of how can we interpret the fourth quarter from the west coast footprints going forward here?

Well, fortunately, the fourth quarter should be a little bit stronger in the West Coast. Arizona, Nevada, you have the seasonality trend here where we have people, snowbirds moving back into those states. So we've seen some stronger top-line growth there, which we're excited about. And as far as the offerings, we're going to continue to add SKUs in all of those markets. We just – we're almost done with our expansion in Nevada – Arizona also just recently underwent expansion. Q1 should see growth from both of those states from us from a cultivation and processing perspective. So we're excited about the future there.

I appreciate it. Thanks for the color, and I'll send it back to you.

Absolutely. Have a great day.

Your next question is from Andrew Simple with Echelon Capital Market.

Good morning, and congrats on the strong results. I just want to go back to Pennsylvania being a meaningful driver of the gross margin improvement quarter over quarter. I just want to get a sense of what proportion of the newly acquired production capacity in that market was allocated to your own store network and whether that product allocation decision was a major driver of our margin enhancement within the quarter.

Good morning, Andrew. Thanks for the question. This is Brian. I'll take that one. For Pennsylvania, it's no secret the vertical benefit is significant to our results. In the quarter, we did move a lot of product through our own stores, having 12 open stores in Pennsylvania in the quarter. And, you know, I would say it's roughly a third of the production. We see that could continue and certainly will be a driver for us going forward. And as George alluded to, we still have significant investment going into the agri-kind facility that we closed on in July. and remain pretty optimistic about getting that facility optimized, our brands and products in the state of Pennsylvania, and certainly will be a key state for us.

Great. And then looking at the EBITDA margin signaled for 2022, you know, you're signaling, you know, normalized level and maybe the low 40s. Just want to dig into some of the assumptions behind that and where you're expecting, you know, the delta to be relative to the current margin profile. I assume the bulk of the change would be attributable to a reallocation of market attribution. Would that be a fair assumption there? And then what sort of directional pricing assumptions and adult use timing assumptions are built into that figure of the low 40s normalized EBITDA margins?

Yeah, so I think your first question on attribution is correct. You know, for 22, there's still a lot of moving parts, and we believe we can run this business on an EBITDA margin in the low 40s. That's something that we're proud of. We continue to run a very efficient business. You know, this quarter in particular was highly efficient, but we believe low 40s for adjusted EBITDA is a fair target for our company. And then, you know, really as we think about adult use, we don't have the crystal ball. New Jersey is looming. That's certainly a market we're very excited about. We now have Connecticut, and we believe, you know, Connecticut's probably going to be maybe late summer, but hopefully sooner. For New Jersey, I think everyone remains hopefully optimistic around kind of March or April, but certainly we don't have any more insight at this point.

Great. That's very helpful. Thanks for taking my questions. We'll get back in queue. Thanks, Andrew.

Your next question is from the line of Matt Bottomley with Canaccord Genuity.

Good morning, everyone. Thanks for all the callers so far this morning. I just wanted to maybe dig a little deeper into one of the adjustments you noted in your prepared remarks. I think it's in the G&A line, you know, substantial reduction in that expense line. And I think you mentioned it had to do with, you know, capitalizing some of these earnouts, you know, from an accounting perspective. So I'm just curious on if that impacts your adjusted EBITDA calc or how that rolls down and kind of comparing what you guys did this quarter to last, given that accounting change.

Yeah, Matt. Good morning. This is Brian. Thanks for the question. We did have some earnouts related to two acquisitions that we did earlier in the year. And fortunately, we had an accounting treatment change that moved everything to the balance sheet. So it was a change in the consideration from compensation. So they no longer are showing on the P&L. When you look back at Q2, those numbers are baked in, so it's not exactly an apples-to-apples comparison. But going forward, the G&A line will not include those earnouts. So it's something we're excited to kind of clean up and share our story in a more clear and concise manner, given that those were related to the acquisitions. So, again, I know it's a tough comparison, but those will be out of the P&L going forward.

No, and to me, that makes sense to have those out anyway. So I just appreciate that comparison. And then just my second question, you know, maybe just more holistically on your sort of CapEx initiative, you know, without getting into dollars, you know, just given all the M&A that's closing and all the growth markets you're in, if you kind of look at, you know, I think you did about $90-some-odd million for the first nine months in PP&E purchases. kind of where that's trending going into next year. Obviously, there's ebbs and flows to when markets open, but just curious on sort of the magnitude nine months into this year versus where you think it'll be going into next year.

Yes, we're at $93 million through the first nine months of this year. We expect that run rate is going to continue into next year. We've got large-scale investments in Pennsylvania and Florida, plus a number of others. We're always active on the capital investment front. It's a huge driver for this business and something we're very excited about. We continue to put money into Pennsylvania and Florida, namely, but also projects in West Virginia, Arizona, Maryland, et cetera. So we are going to continue to invest back into our business. And I think, you know, for this year, we'll be north of $120 million in CapEx, and I would assume the same run rate for next year.

Perfect. Very helpful. Thanks again. Thanks, Matt.

Your next question is from the line of Aaron Gray with AGP Alliance GI.

Hi. Thank you very much for the question, and congrats on the quarter. First question for me, just on the M&A front. I just want to get some color in terms of how you're thinking about M&A in terms of, you know, going deeper in current states versus expanding into new states. I saw you guys, you know, just got into Connecticut. So just wanted to get some further, you know, commentary on how you're thinking about the M&A and then maybe about some pricing that you're seeing in the marketplace and where that's been trending, especially relative to the private market versus the public market. Thank you.

Good morning, Aaron. This is George. Our goal has always been to go deeper. There are still a couple of markets that we'd like to add some depth in, primarily possibly Arizona, Nevada, Massachusetts. We'd like to add another store. But for the most part, we've gone pretty deep in the majority of our markets that we'd like to, and we are looking at opportunities outside of our current footprint, like Connecticut. We thought that was a great opportunity for us, vertically integrated, one of the best cultivation and processing assets in that state, two very strong stores. And with the Delta Houston Horizon, it was a deal that made a tremendous amount of sense for Verona. The margin profile is there. More importantly, the team that's running those assets is going to integrate very well with the Perando team. There are a couple of key players there. One of the founders of CP Pharma that we believe is going to be incremental to our growth in the East Coast. And we're excited about that opportunity. As far as pricing, you know, private pricing, If you know how to negotiate, it falls in line with public pricing. We don't overpay for assets. We're not known for that. We pay within a certain margin profile. It also depends on how much capital has been deployed into those assets. So as we ebb and flow with the public market, the pricing in the private market ebbs and flows as well. And we're not going to stop transacting if the public market is a little bit off, even though we feel it shouldn't be. We feel the fundamentals of the business are very strong. And we'll continue to transact in deals that make sense for Verano.

All right, great. Thank you very much for that call. That's helpful. And then second question for me. You know, you guys always kind of position Verano as being, you know, premium product. That's a way to differentiate yourself. You know, a lot of your peers, as you're seeing some pricing pressure in some of the markets, particularly on value and mainstream, looking to improve yields and shift a little bit more towards premium segment. So I just wanted to get, you know, some commentary from you in terms of, how you see that competitive dynamic evolving in terms of the premium segment, you know, whether or not you think there's going to be the availability for them to shift up from mainstream maybe to premium with the current cultivation assets and how you kind of see that, you know, category evolving for you guys. Thank you.

Good question. Easier said than done, right? When you're growing a million square feet of canopy, two million square feet of canopy, whatever the case may be, very difficult to keep consistency. But there are many operators out there that do offer premium offerings. We see them in multiple markets. And there's room for everyone, right? People like variety, and competition is not something that we're worried about. We've built a tremendous business here. We have great people. We welcome more competition, and we feel they can only make us look even better. That's how we look at it, and that's how we feel about the outcome looking for us in the future. I mean, we love premium offering. We can continue to bring our new SKUs and form factors in every single market, but our flower will always be our namesake.

Makes sense. Thanks for the detail, and congrats again on the quarter. Thanks, Aaron.

I will now turn the call back over to George Arcos for close remarks.

I thank you, everyone, for joining us today. We'd like to wish you happy holidays, and we look forward to the next call.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.