Verano Hldgs Corp

Good day and thank you for standing by. Welcome to the Verano Holdings Corporation first quarter 2022 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. Please be advised that this conference is being recorded. If you require any further assistance, please press star zero. I would now like to introduce today's speaker, Juliana Patera. Please go ahead.

Thank you, and good morning, everyone. Welcome to Verano's first quarter 2022 earnings conference call. I'm joined today by George Arcos, Chief Executive Officer and Founder. Brett Semerer, Chief Financial Officer, and Erin Miles, Chief Investment Officer.

During this call, we will discuss our business outlook and make forward-looking statements within the meaning of applicable securities 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. 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 quarter ended March 31, 2022. In addition, throughout today's discussion, Verano 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. ...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. Lastly, all currency is in U.S. dollars unless otherwise noted. I'll now turn the call over to George. Please go ahead.

Thank you, Giuliana, and thank you, everyone, for joining us today. This was another important quarter for Verano as we continue to work diligently to position the company ahead of anticipated growth. I am proud of the team as we were able to deliver first quarter adjusted EBITDA margins of 40% despite some industry-wide pressures. Today, I'll provide some updates on the business before passing it off to Aaron Miles, our Chief Investment Officer, to discuss some capital markets updates, which will be followed by a detailed overview of our financials from Brett Sommer, our Chief Financial Officer. I'd like to kick things off with an update on the progress we are making in New Jersey. We are off to an extremely strong start in the state with performance exceeding our early expectations. This is highlighted by foot traffic during the first week of adult use sales up more than 13 times versus the prior week of medical-only sales. We anticipate continued momentum in the coming months as New Jersey's adult use program continues to develop, and with the anticipated approval of adult use sales at our existing Neptune dispensary, Zenly's Neptune is only two miles from the Jersey Shore and other popular landmarks such as the Asbury Park Boardwalk. With the coming summer season, we anticipate this will be our strongest location in the state. We also continue to have ample supply to meet demand in New Jersey and are currently wholesaling select products throughout the state. We expect an increased contribution from wholesaling towards the end of the year. We will provide more visibility into the New Jersey market once our third location opens to recreational consumers and the market is further developed. Now on to some financial highlights. As we guided to on our last call, the quarter came in at a mid-single-digit decline at $202 million in revenue. This was driven by seasonality effects with lighter sales in January and February while we saw a pickup in March that we think will carry through to Q. The first quarter also grappled with a sweeping Omicron variant in addition to the industry-wide vape recall in Pennsylvania, which halted our vape sales for six weeks.

to experience pricing pressures alongside inflation. We do not believe this is a time to substantially lower prices and will be avoiding deflationary actions to the best of our abilities.

What I want to focus on today is our extremely strong positioning in markets that we foresee legalizing recreational use in the near future. These are areas in which we have prioritized our CapEx spend so that we are best prepared to meet increased demand. As discussed, New Jersey is already performing well, and we are strongly positioned on the wholesale side with ample supply to meet demand. We ramped up operations to full swing once adult use sales were given a green light, and we expect to expand our wholesale efforts in the state throughout the year. With expectations of our Neptune location to be our top performing location, given its adjacency to the Jersey Shore, we anticipate this opening alongside increased wholesaling in the second half to drive significant growth for the company. We also expect Connecticut to begin its value sales towards the end of this year. In preparation, we are in the process of an internal cultivation expansion. We already hold very strong market share positioning in the state thanks to the members of the CT Pharma team, which have proven themselves excellent operators and partners. We expect to build off a strong foundation once we welcome adult use customers. Additionally, Pennsylvania is poised for legalization. We are seeing promising progress in the state and believe an adult use framework could be put forth in the near term. We are investing in cultivation ahead of any legalization with the first phase of our second cultivation site planned at 75,000 square feet of cultivation and manufacturing space, which would put us at a total of over 135,000 square feet of production. Our Verano strains are now growing in the Keystone State, and we expect to begin wholesaling our namesake brand in the third quarter. We are also hearing positive things out of Maryland and now believe we could see an adult use program as soon as next year. We don't talk about Maryland often enough, but it is a strong and steady state within our portfolio. Our market share has been increasing year-to-date, so news of an adult-use program in the state come at a good time. And in our pending acquisition of Goodness Growth, our partners there are in the process of expanding their New York and Minnesota facilities. In New York, they are building out the interior of a 320,000-square-foot indoor facility, which will be built out to Verano-level specs and quality. And in Minnesota, their team is building out a new indoor facility, which will be built out in phases alongside market growth. We also continue to build out our second Florida facility. Phase one of this expansion is complete at 40,000 square feet. We have plants in the ground, and at first harvest, we will be prepared to service new locations brought online to support our medical patients in the next few years. So we will build the facility out in phases as we gain visibility into program structure. Lastly, in Illinois, as you may recall, we took proactive measures to enhance capabilities ahead of the additional 185 dispensaries that will ultimately come online. We are reaping benefits of the efforts we've made, and our flower market share increased throughout Q1. Positioning is of the utmost importance for us, so we are prioritizing CapEx for our dollars spent. We see tremendous value in reinvesting into the business, and this is a critical time as we prepare for these aforementioned growth markets and position ourselves ahead of anticipated increased demand. Now I'll turn it over to Aaron, our Chief Investment Officer, who will speak to the actions we are taking to benefit our capital market positioning.

Thanks, George. I'd like to take a few moments to touch on our capital markets initiatives, especially given the persistent pressure across the industry. Unfortunately, given the extreme limitations for many institutions to enter the space, we feel that we do not yet trade on fundamentals and instead generally trade on volatile retail sentiment surrounding federal legislation.

There are, however, actions we are taking to position Toronto to be any place to take advantage of U.S.

capital market opportunities as they develop. This includes taking steps to be prepared for a potential uplifting to a U.S. exchange. We remain actively engaged with both of the major exchanges in the U.S., and given my prior experience at the NYSE, I'm able to leverage relationships from both to continue the dialogue. We're also having proactive discussions with blue-chip asset managers, and while many may not be able to invest just yet, we are taking time to educate these groups on the U.S. cannabis industry and Verano. While there are no guarantees, we will continue to believe that these participants will be fully educated on the Verano story as soon as the federal regulatory landscape permits potential investments. Safe banking is also critical to this discussion.

Verano recently joined a task force of leveraging key experiences in relationships in the capital markets, including the capital markets industry. Lastly, as

As George touched on earlier, we have a multitude of high ROI CapEx projects in the pipeline. While we have discussed the option of share buybacks internally, we believe there is still enormous value in investing into the Verano footprint. Once these numerous CapEx projects near completion, nothing is off the table. We want to drive value and returns for our investors and are always evaluating ways to do so, which ranges from further areas of investment, including M&A and CapEx, to share buybacks. I want to end, but we can't run the business based on non-fundamental dislocations in the equity market. We're building the company for long-term growth and success while building relationships now that will benefit us in the future. And now I'll turn it over to Brett.

Thanks, Aaron. Today I'll review financial highlights from the first quarter of 2022. As a reminder, all financials are now reported in U.S. GAAP. First quarter 2022 revenue was $202 million, up 67% compared to the first quarter of 2021 and down 4% sequentially. As George mentioned, we experienced softness due to seasonality in January and February. Across our footprint, Illinois and Pennsylvania were the largest drivers versus the prior quarter. Gross profit for the first quarter of 2022 was $100 million, or 49% of revenue, compared to $54 million, or 45% of revenue, for the same period of last year. SG&A expenses, inclusive of depreciation and amortization, were $80 million for the 2022 first quarter, or 40% of revenue. However, we typically exclude depreciation and amortization in earnouts, which would be 27%. versus 25% on the same basis in the prior quarter. Sequentially, SG&A expenses increased 2% primarily due to costs associated with our conversion from IFRS to US GAAP and M&A deal costs. We had a net loss for the quarter of $7 million versus a loss of $2 million in Q1 of 21. Adjusted EBITDA was 80 million or 40% of revenue for the first quarter and 60 million or 50% of revenue in the same period of last year. Turning to the balance sheet and cash flows, we ended the quarter with $140 million of cash and cash equivalents. Cash flow from operations for the first quarter was $53 million, and free cash flow was $6 million. CapEx spent the quarter at $47 million, on track for the full year of $185 million to $350 million we projected earlier this year. As both George and Erin discussed, we have no shortage of attractive projects. The main areas for current investment are Pennsylvania, Illinois, Connecticut, and Florida cultivation expansion projects. Though we have numerous CapEx projects slated for the year, we also expect to remain selectively acquisitive as we look to round out our portfolio in attractive markets. Ultimately, I am extremely confident that our strong financial standing will continue to allow for further reinvestment into the company and support future growth. When thinking about our debt capacity, it's worth noting that we are underlevered versus our peers on a debt-to-event basis. If we were to be in line with our peer set, our debt could be substantially higher than it is today. With that, I'll pass it back to George for some closing remarks. Thank you, Brett.

To close, this was another foundational quarter for Verano, and as I discussed, we have many reasons to be extremely excited about what the remainder of 2022 will bring. Looking ahead, we are expecting a slow progress of margins throughout the year, likely with some volatility, but still expect for the full year to end with 40-plus percent margins. We expect solid growth in the second quarter, and we anticipate giving more formal guidance by the second quarter call once we get more clarity into New Jersey and other moving pieces. Operator, please open it up for Q&A.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the cluster. We have our first question. Question comes from the line of Camilo Leon from VTIG. Your line is open.

Thank you. Good morning, everyone. I wanted to switch on New Jersey, George and Brett. Clearly, this has been a market that has been a drag on EBITDA margins for you given the delay in adult use sales. You've got two stores open now. You're talking about the third coming online in the summer, and obviously you've had a really strong early start to sales, and the success you've seen in the market has been very, very noticeable. So the question is, could you help us understand how we should think about this market becoming EBITDA accretive, given the drag that it's been

um thus far pre-adult use sales you know how do we think about when this market can actually be an accretive market to the overall enterprise good morning camillo uh george here so the market's because i mean it was accretive for us before obviously it's more creative now um there's quite a bit of vertical integration within our two stores and with the third that'll be great for us we're also starting the wholesale so You know, we're seeing the benefit of a 120,000-foot facility finally coming to full use. It's full of plants now, and we expect the market to continue to expand. So I think you'll see a little bit of a margin pickup in Q2. You know, we're getting, you know, call it half a quarter, and that'll continue to Q3 when hopefully that third store will be open by then and probably get stronger throughout the end of the year as we continue wholesale pickup. So I think it'll be a gradual increase from Q2 on.

Great. Perfect. And then shifting to Illinois, you talked about progressive market share gains after the reset in that market. Maybe if you could just shed some more color on that. And are you beginning the second quarter – did you begin the second quarter from the perspective of really operating at full capacity and full speed – And then if you could just give any sort of insights, George, there's been some news over the last day or two that the legislation and the judge overseeing the social equity litigation could actually remove the roadblocks and issue those licenses as early as later this week. Any insights into that would be very interesting.

So on the licenses, we're hearing that that could happen. It's very viable and obviously that's what we're hoping for. The market share pickup will be significantly easier with 185 new stores opening versus trying to get all that back within the current environment. It's not easy to just take that shelf space back after it's gone. I mean, that's just the reality of it. So yes, we are going to pick up some market share, but it's going to be a very slow move up with the current environment. If these new 185 stores get released this week or within the next few weeks and they start opening at the end of the year, Great for us, right? Opportunity to get a new market share, new markets that will have new stores, and that's really what we're anticipating. It's not a matter of if, it's just a matter of when. And it sounds like everything we're hearing that this is going to happen in pretty short order, so fingers crossed.

And then talking about the licenses, just where you are with, you know, kind of the

resetting of your existing facilities and the product that's coming out of those facilities?

Yeah, we saw some favorable pickup on the gross margin side. But again, facilities back to where it used to be, legacy product, everything is fantastic from that front. But, again, gaining that market show back is going to be a slow ride up. I don't want to say that it's a flip of a light switch. There's a lot of work to be done to get that market show back, and it's obviously significantly easier when you have 185 new shelves versus trying to get it from the current 110. That's the way we look at it, but we're ready for it. Product is there, which for us is the most important piece. Customer feedback is phenomenal, and everyone's excited for the reset. So that was step one, and now step two is slowly getting the market show back.

Great. And if I can just throw one more in there. You talked last quarter about a value brand rollout. Any sort of thoughts you can share on the timing of that rollout and what markets might see that first? And if you're actually seeing consumer demand for a lower price product?

We do. I mean, the lower price product demand has always been there. It's just something that we haven't played in. So we anticipate rolling it out in Illinois first over the next few months. That'll be the first priority where we have enough supply to be able to do it, and then slowly we'll roll it out into other markets where it makes sense. But for right now, Illinois is the first target for the value brand. Great. I'll turn it over. Thanks a lot, George. Thanks, Rameel. Have a great day.

Sure. Our next question comes from the line of Matt McGinley from Needham. Your line is open.

Thank you. On the liquidity outlook, Verano had about $140 million in cash exiting the quarter. How much in cash outflow do you expect to have in the second quarter related to the deferred consideration, CapEx, and cash tax payments?

Well, I'll say that we've managed that depending on other demands that we have from a capital perspective, expansion M&A, all that stuff. So it always moves around on us. But you should expect Q2 to be a little bit lower than Q1 in that regard. Most of our payouts were weighted towards the first half of the year and within the first half towards Q1. So it'll be probably in the $34 million range, but less than Q1.

And that's, Brett, that's for deferred consideration capex and cash tax payments altogether, or that's just cash tax payments?

That's just deferred payments.

Okay. Okay. And on the adjusted EBITDA, the way you bucket all the add-backs and EBITDA doesn't really give us a good sense of what's actually in that number. I think you added back about $10 million or so related to M&A air announce, and there's probably another, I think, $4 million or so related to inventory step-ups. But I guess can you help us understand what's actually in that $17 million bucket in your adjusted EBITDA?

Yeah, so it's the $17 million specifically is the gain that we had on the equity for one of the transactions.

It's the earnouts.

It's the inventory step-up, and it's the amount of money that we had for the flip to U.S. GAAP from IFRS and also... Really, M&A deals, like the fees will be paid to lawyers and that sort of thing. Okay. Thank you.

Our next question comes from the line of Scott Fortune from North Capital Market.

Question. Just getting back on, you had a real tough time rolling out new products to add to the shelves after the approval was started. Were you, as far as offering full products, or are you still limited on the product availability for

Good morning, Russ. We added tinctures, botanicals. We have new flower strains.

So every week we're adding new things. So the menu's becoming pretty full, and we're excited about that. We're actually just going through inventory right before this call, and we continue to add supply at the cultivation facility, which will not only add more supply, but it will also add more throughout the state. The state approved quite a few things the week of the launch. So it just takes time to ramp up and add all the concentrates, et cetera, but those are all coming out and is key to basket size and sell through all the products at the facility.

Okay.

And then one follow-up for me, kind of looking at the key markets where we can provide a little color in the second quarter here, how you're seeing pricing. Is there some sort of stabilization?

And kind of what are you seeing from the traffic versus average basket size in the states of Florida, Pennsylvania? You know, we know Massachusetts has come off big time in Hill. Those key states kind of just shape up the consumer and kind of the trends you're seeing in second quarter here would be great.

Yeah, great question. I mean, we answer this one all the time. So for us, our pricing is pretty stabilized at the end of the premier quarter. side of the market. The only difference for us is we've introduced a mid-tier line and we're looking forward to introducing a value-rent line. That stabilization for Verano is there. We're just attacking different tiers in the pricing category. As far as basket size, we've seen about a 2% decline overall throughout the country.

That is what it is.

You look at the macro environment and what's going on, it makes sense. adding these different price points now for us is an opportunity. And we're looking forward to seeing the results.

I appreciate it, Claire. I'll jump back in with you. Thanks.

Our next question comes from the line of Russell Stanley from Econ Securities. Your line is open.

Good morning, and thank you for taking my question. First around, uh florida georgia you indicate some optimism around adult use there just wondering you know what kind of path you expect that to take i assume you mean uh uh something voter driven or or do you do you have hopes on a i know you see some sort of legislative action there that was the values in which state i didn't catch that that was florida florida i think that's going to be more of a 2024 voter referendum issue i mean it would make sense for it to be

approved via legislation. I just don't know if that's going to happen. I don't know if they're going to make that push. I don't think they want all those voters going to the polls. Usually that's more Democratic voters and it's a Republican state for the most part, but we'll see if we can push that across the finish line next year. We're more anticipating a 2024 vote, so that's what we're looking at for Florida.

And staying on Florida, I guess the city of Miami is now expected to finally, or has been kind of a crack open, I guess, for dispensaries. Just wondering how much of an opportunity that is from a retail build-out perspective and what you might be doing on that front.

So, I mean, we do have some stores we're looking at in that area. We're adding some to the portfolio. Historically, it's not a great medical market in the Miami area. I think it's more of an adult use opportunity. So as we get closer to 2024, we'll look at, you know, different sites and locations there and make sure that we have access for the consumers. But it's not something that we've been focusing on the last few years.

And just one more, if I could, just on the cash from operations, 53 million, you know, another strong quarter there. Just wondering if you can break down, I guess, how much of a working capital release you may have benefited from in the quarter.

Actually, our working capital is up as we increased our inventories relative to building up for 420. So it was actually a drag from a working capital perspective.

How much of a drag was it?

Sorry?

How much of a drag was it?

Mid-double digits, or not mid-double digits, mid-teens.

Okay.

That's great.

Thank you very much. I'll get back in the queue.

Thank you.

Our next question comes from the line of Just want to get your sense on when you would anticipate seeing new first stores opening that aren't in the state on an exact timeline. But what I'm trying to get at is to get a sense of when the wholesale opportunity with new stores opening. Hey, good morning, Andrew. Good question. I think if they hold on to their real estate, we could see stores opening probably around eight months from now and then continue throughout the next 18 months.

That's probably the earliest time frame. If they didn't hold on to their stores, find a location, go through zoning, get open, so it could take longer.

But I would anticipate a few of those licenses, they hold on to the location, so And my next question, I just want to go back to the gross margin and just really want to home it.

on what were the big drivers behind that. It sounds like Illinois and the improved cultivation facility there was a step in the right direction. You know, besides that and across other markets, did you allocate more product internally or did you fare better in the face of some of the pricing competition that we've seen many of your peers discuss? What really drove that market improvement?

Sure. So margins were largely flat, but they were up slightly on an operational basis, which is to say excluding our depreciation, our step-up.

And the two drivers behind that are the Illinois improvements that we talked about and also in the market we've been able to dial back discounts relative to where they had been.

So I think both of those things helped us get a lift on our gross margin this quarter.

Great. Thanks for taking my questions. Thank you.

Our next question comes from the line of Matt Bottomley from Canaccord Genuity. The line is open.

Yeah, good morning, everyone. Just wanted to go back to the cash flow profile. So, you know, one of the limited number of MSOs that has free cash flow from operations, but just looking at that $6 million contribution this quarter, just going back to some of your comments on cash outflows, I think you touched a little bit on some of the deferred compensation, about $30 million, $40 million on the acquisitions. Can you just talk a little bit more on the tax specifically, because obviously every MSO has a pretty large tax payable for Q1. And I'm just curious of the $200 million or so on the balance sheet, how much of that is cash? What's the timing? Just kind of get a refresh on that, please.

Sure. So I think we certainly answered this question a lot, but I have to answer it again. The total deferred taxes on our balance sheet represents – we target about a year, and right now I think we're about a year and a half. So if you think about the total amount that we have out there, it's essentially debt at a very low cost. It makes sense for our shareholders to have that as opposed to market-based debt. So we keep managing that intelligently to make sure that we're providing the right cost of funding. That being said, again, we do have an internal target of about a year. Right now we're a little over that. We actually have made recent payments here in Q2, so you'll see that fall in Q2.

Got it. Appreciate that. And just on the M&A side, you mentioned you're going to be sort of selectively acquisitive going forward. Is there any meaningful stakes that you think are needed in your portfolio, or are these more sort of tack-on like you've done in the past in markets like Pennsylvania and other ones that have good regulatory programs?

Listen, we look at every market. There's nothing that we necessarily need. We're very happy with the footprint that we have. That being said, you know, there are tuck-in opportunities for us in a few states that we already operate in and we're vertical in. And there's some new states that could be attractive if the price point makes sense and if the operations, you know, fit the Verano culture. So we look at everything. We don't transact on everything, but we're not afraid to if something makes sense for us.

Okay. Thank you.

Thanks, Matt. Have a great day.

Our next question comes from the line of Ken Rick from ATB Capital Markets. Your line is open.

Thank you, and good morning. Joe, just on New Jersey, and I'd like to pivot to PA quickly, but on New Jersey, first-line sales of $24 million. We've all seen the announcements on six additional stores coming online soon, just in line with potential planned openings from some of the other major operators. Those new stores obviously provide some short-term oxygen to the market, but how confident are you in your ability sort of on an absolute relative basis to capitalize on that near-term store expansion, and also just more broadly on any insights you provide about the pace of the ramp or the acceleration that those new stores give to New Jersey in the short term, you know, outside of, you know, anything else later in the year on additional openings.

Good morning, Kendrick. So, another good question. I mean, the market needs more stores, plain and simple, right? I mean, the velocity of the market has been great, but we're going to see you know, further growth with additional capabilities to serve the consumers, right? There's only so long people want to wait in line and people want to travel, you know, far distances to get their products. So the more stores that open, it takes away from the black market and provides an opportunity for us licensees. We plan on wholesaling to all the stores in the state when they open. We're also excited to get our third store open as well on the shore. So again, what we talked about earlier, yes, the market's been great so far, but there's a lot of room for growth and expansion. So this is just another step in that direction. And we view it as a positive one.

Thank you, Joyce. And then just on Pennsylvania, and you did call out the weakness in Illinois and PA, but can you speak to Pennsylvania? How much of that was the broader market weakness? How much of that was – I'm sorry, the broader market weakness on the vape recall, how much of that may or may not have been other factors impacting the Pennsylvania performance? Any insights on Pennsylvania would be appreciated.

Well, the vape ban was significant, right? Six weeks of no vape sales hurt quite a few operators there. and hurt the market. Obviously, Pennsylvania was not an outlier as far as weakness in January and February. The market was weaker there. So it's come back a little bit in March and hopefully continues to ramp throughout the year. We have some additional store openings as well that we're very excited about in the Philadelphia region and some in the Pittsburgh region. So that'll provide some additional growth for us throughout the year. And we're looking forward to launching our Verano products. We had to sell through everything that the former facility had. It wasn't of the quality that we like to be able to sell Verano, so we're very much so excited for that in Q3. And we think Pennsylvania is still one of the best markets in the country, and we think adult use is on the horizon there. So we're preparing and anticipating that over the next 12 to 18 months, and that's really what we're focused on.

Good. Thanks, George. I'll pass the line.

Thank you.

Our next question comes from the line of Neil Gomer from Haywood Securities. Your line is open.

Yeah, thanks very much. Many of the questions have been answered, but maybe just an update on the goodness growth divestitures. Is that going to be towards the closing that you're expecting at the end of this year? Is that just going to happen throughout the year as you sort of complete the RFP process?

The goal would be to have almost a simultaneous closing, so we'll push those towards the end of the year. Obviously, we have to work with the regulators to make sure that we follow all their guidelines, but it would be more towards the end of the year.

Yeah, okay. And then just maybe a small one. About 10 days ago, you announced the launch of mobile applications across a number of the different states you're in. Just wondering how the initial uptake has been and adoption of that has been.

We've been pleasantly surprised. You know, when you have a loyal following, it shows when you do things like that. And we have quite a few sign-ups, and it gives us an opportunity to reach our customers on an easier basis. So we're excited about the opportunity there. And it's kind of a, you know, it was a good launch. The sign-ups were tremendous. The app is good, but it's only going to get better. There's a lot of things that we need to improve upon there, but we're looking forward to expanding on that side of the tech front.

Great. Okay. Thanks very much.

Thank you.

Again, if you would like to ask a question, press star one on your telephone. We have a question from Spencer Haynes from Wolf Research. Your line is open.

Great. Thank you.

So pivoting back to New Jersey sales, can you just talk a bit about how your stores perform versus the $2 million average AUV that the industry saw in the first month? And then are you seeing any issues with inventory at your peers that maybe have less cultivation capacity than you guys have in this case?

I'm sorry. I didn't catch the first part of that question.

Can you just talk about how your stores performed versus sort of the industry average volume that's about that $2 million level? And then any issues that are seen with inventory in the state?

Is this in New Jersey? We didn't catch which state we're talking about. In New Jersey. In New Jersey. Oh. So we don't comment on specific sales on the stores. Obviously, they're doing tremendously well. We would rather wait for the program to play out a little bit, get our third store open, see some of the new store openings before we comment on specific sales. That being said, we have great operations on the cultivation front, ample supply across all categories. So you're seeing our menu increase week over week, basket size increasing due to expanded variety in the menu side, and I think Jersey is going to be a very strong market for us for years to come.

data that's helpful we'll stay tuned there and then i guess just in terms of qq i don't know if you commented on sort of how sales are trending quarter to date if you could just quantify that and then you call up that two percent decline in basket are you expecting by checking that decline to accelerate going forward how are you thinking about thinking about that as inflation really starts to pick up here yeah so um

From a Q2 perspective, you know, we will provide some guidance here in the upcoming future. All I can say right now is that, you know, you should expect Q2 to be above Q1, which I think that we've talked about before. So I don't think we're sharing anything new there, but we'll provide something more specific in the near future. And in terms of basket size, you know, I would think that the trend is the trend. It's pretty consistent, and I would think that that will follow for a while.

Got it. Thank you.

We have no further questions at this time. Now I turn to go over to George.

All right. Thank you, everyone, for joining today, and look forward to talking soon.

This concludes today's conference call. Thank you for participating. You may now disconnect.