Verano Hldgs Corp

Ladies and gentlemen, thank you for standing by and welcome to the Verano Corporation fourth 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 will need to press star 1 on your telephone keypad. And 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, Ms. Juliana Patera. Ma'am, please go ahead.

Thank you, and good morning, everyone. Welcome to Verano's fourth quarter and full year 2021 earnings conference call. I'm joined today by George Arcos, chief executive officer and co-founder, Brett Summerer, chief financial officer, Darren White, chief operating officer and general counsel, and Erin Miles, our chief investment officer. During this call, we will discuss our business outlook and make forward-looking statements within the meaning of applicable security laws, which are based on management's current assumptions and expectations. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, and achievements of the business or developments in the company's industry to differ materially from those implied by such forward-looking statements. Actual events or results could differ considerably due to risks and uncertainties mentioned in our filings on EDGAR, including our financial statements and MD&A for the fiscal year ended December 31st, 2021. In addition, throughout today's discussion, Verana will refer to non-GAAP measures that do not have any standardized meaning prescribed by GAAP, such as EBITDA, adjusted EBITDA, and free cash flow. Management believes non-GAAP results are useful to enhance the understanding of the company's ongoing performance, but are supplemental to and should not be considered in isolation from or as a substitute for GAAP financial measures. These non-GAAP measures are defined in our earnings press release issued earlier today and available at investors.verano.com, which also includes the reconciliation of these measures to the most comparable GAAP financial measures. The financial statements we filed on EDGAR are in accordance with GAAP and account for the AltMed companies beginning on February 11th, the actual date of the acquisition. For convenience, we will also present financial information on a pro forma consolidated basis that includes the AltMed companies for fiscal year ended December 31st, 2021 as if the acquisition closed on January 1st, 2021. Lastly, all currency is in U.S. dollars unless otherwise noted. I will now turn the call over to George. Please go ahead.

Thank you all for joining today. To begin, I cannot emphasize enough how proud I am of what we accomplished in what was a truly transformational 2021 for Verado, our first year as a publicly traded company. At the beginning of last year, we announced our plans to enter the public markets and become one of the largest and most profitable Tier 1 multi-state operators in the U.S., I am pleased to report results that highlight the significant progress towards achieving those goals. After I discuss our preliminary results and progress, Darren Weiss, our Chief Operating Officer, will detail some of his organizational initiatives and operational developments that have been instrumental in our growth over the last six months. I will then cover my vision for Verano in 2022, followed by a detailed financial review from our Chief Financial Officer, Brett Sommerer. Heading into 2021, we knew that it was going to be the most important year to date in Verano's history. We developed and executed against our strategic plan to bolster our visibility in the public markets, expand and deepen our footprint, and improve upon our financial health. Our positive free cash flow and profitability continue to differentiate us as they allow us to reinvest in the business to relentlessly pursue growth. Since going public in February of last year, we have continued to set the pace for consolidation. demonstrated by 16 announced acquisitions with 14 closed and two pending. Between organic and inorganic activity, including the contribution from pending acquisitions, we have increased our dispensary total by 60 to 114 dispensaries nationwide and increased our cultivation capacity to over 1.1 million square feet. To support our rapid growth, in 2021, we held one equity raise and made two amendments with favorable terms, along with three draws on our credit facility. Due to increased demand, we also proactively manage our cap table by accelerating our lockup schedule to facilitate additional liquidity and attract long-term fundamental and institutional investors. Of note, all of the items I just mentioned were done virtually and under the umbrella of COVID, inflation, and supply chain disruptions. More importantly, we achieved all of this while remaining profitable and prioritizing a strong margin profile. We believe these strategic actions have set us up with one of the strongest growth platforms in the industry that will also increase our ability to attract and incorporate new talent and assets. We believe these actions, in combination with our operational expertise, solidifies Verano's reputation as a partner of choice for groups which we identify as strategic additions to our portfolio. Diving into the financials of the quarter, notwithstanding the industry and macro headwinds we faced in the fourth quarter, including rising inflation, COVID-related impacts, and pricing pressure, I am extremely pleased to report that we achieved fourth quarter 2021 revenue of more than $211 million with a strong adjusted EBITDA margin of 40%. On a full-year basis, but not including the full contribution from Altmed, revenue came in at $738 million with adjusted EBITDA margins of 44%. And on a pro forma basis, assuming the ultimate transaction closed January 1st, 2021, we achieved 2021 revenue of $760 million with a margin profile within the range of what we guided to. And despite downward market pricing pressure, we were also able to maintain our premium pricing position, which helped us maintain a strong margin profile. Looking ahead to our first quarter 2022 results, January and February both were impacted by significant challenges. led by the Omicron variant sweeping across our consumer base on top of inflation, supply chain issues, and expected seasonality. Additionally, the industry was subject to a vape ban in Pennsylvania that impacted our sales for six weeks. While the beginning of the year had its fair share of obstacles, the good news is that we've experienced growth and normalization in March. Given all of these headwinds, for Q1 2022, we anticipate a mid-single-digit percentage decline for top-line revenue. Of note, however, using March as a run rate for the first quarter, revenue would have increased sequentially from the fourth quarter, even excluding the contributions from our CT pharma acquisition. We have continued to see the momentum carry into the second quarter, which includes adult use sales turning on in New Jersey. New Jersey is a prime example of our ability to quickly scale and deploy our strategies. On April 11th of 2022, the New Jersey Cannabis Regulatory Commission, or CRC, voted to finally approve adult use sales. One week later, the CRC advised that sales would begin on April 21st. Last week, April 21st marked the first day of adult use sales for the state, a day for which we were preparing for nearly a year. We built our operations in the state with legalization of adult use in mind and had more than adequate supply for what was extremely strong demand. In fact, to our knowledge, we were the only operator in New Jersey that did not cap per customer sales as we were confident that we could meet this extra demand while continuing to prioritize our medical patients. I spent last week in New Jersey at ground zero, coaching staff, packaging products, quality checking our dispensaries, and even meeting with Governor Murphy at our Elizabeth store to kick off the festivities. I saw firsthand the excitement from our new consumer base. Although lines were wrapped around our dispensaries, we managed the chaos as a team, to deliver an exceptional experience for our first-time cannabis buyers and repeat customers and patients. Our first few days of sales in New Jersey have been a huge success. We also remain well positioned in our other core markets. In Florida, despite significant price compression across the industry in the second half of 2021, we held true to our premium price points, averaging prices more than 20% above other operators in the state, given the quality of our flour and other products. This is truly significant because despite our premium pricing, between July and December, we gained market share to achieve the third largest market position in Florida. Further, Florida reports on a volume and not dollar basis, so this likely understates our market positioning. Florida is a very important market for our portfolio and is an example of us positioning ourselves in states that are primed for state legalization of adult use. We currently stand at 45 operating dispensaries in the state, including the recently opened Hope Sound location, and it plans to continue store openings throughout the year. To ensure adequate supply of our full suite of offerings as we expand our dispensary footprint, we are in the process of building out a second indoor facility. In addition to supporting our MOVE brand, this increased capacity now includes a high-quality Verano brand, which was introduced into Florida earlier this year. Similar to the playbook we employed in Illinois, we are positioning ourselves ahead of the curve by growing our operations in advance of adult use legalization by the state, ensuring we are prepared to meet the resulting demand. In Pennsylvania, we are also preparing for a state legalized adult use market through investments in our current cultivation facility and a phase build out of a second cultivation facility, which we anticipate coming online by the end of this year. Of note, we are building this new facility from the ground up to our state of the art specs, empowering us to deliver our top quality products to the Pennsylvania wholesale market. In addition, through our current operations, we anticipate introducing our Verano strains into the Pennsylvania market in Q3 of this year. And in other markets, we recently received operational approval for the expanded cultivation facility in Nevada. In West Virginia, our newest active state, we opened our first dispensary in Morgantown in mid-March, have plants in the ground in our newly operational cultivation and processing facility, and maintain the option to open six additional dispensaries across the state. Overall, 2021 saw significant legislative progress at the state level. A total of five states approved adult-use cannabis programs, giving nearly 25 million additional adults legal access to cannabis. The largest of these markets, with approximately 15 million adults over the age of 21, is New York, a market into which we are thrilled to be expanding pending the close of the previously announced Goodness Growth Holdings acquisition. We believe we are entering the market at just the right time. ahead of the state's rollout of its adult use program, one which is projected to do over $1.5 billion in sales next year. The close of this acquisition will give Verona one of the 10 existing vertical licenses in the state and four of the state's 40 current dispensaries, with the option to open four additional dispensaries in high-traffic areas in the future. Goodness Girls' New York cultivation facility was already under expansion in preparation for our state-legalized adult use demand. which upon close gives us the ability to hit the ground running with a state-of-the-art facility built out to the highest operational standards. Closing on the goodness growth transaction will also give Verona one of just two existing licenses in Minnesota, a state that is projected to generate over $150 million in medical-only sales next year. We believe this license is significantly underappreciated by the market, and we are incredibly excited to add this license to our portfolio. The state also recently introduced flower sales, with edible sales soon to follow. which presents additional growth opportunity for Verano. We are also pleased by the incremental discussion surrounding the state's prospects of transitioning to adult use legalization in the years ahead. In addition, closing on the Goodness Girls transaction will also allow us to enter New Mexico, which just launched state legalized adult use sales this month, to too much excitement. In fact, the state achieved nearly $2 million in sales on its first day. We continue to be excited about the goodness growth transaction, which we expect to occur by the end of the year pending the appropriate regulatory approvals. Now I want to turn it over to our COO, Darren Weiss, to talk about some of the strategic initiatives on the organizational and operational fronts. Darren has been with us since 2015 and has an extremely strong operational background. He is an invaluable asset to the team, having led the company through our GoPublic transaction and helping the company build its operations during our recent period of explosive growth. Thanks, George.