Verano Hldgs Corp

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Verano Holdings fourth quarter 2022 earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I'd like to turn the conference over to Juliana Patera, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to Verano's fourth quarter and full year 2022 earnings conference call. I am joined today by George Arcos, Chief Executive Officer and Founder, Brett Sommer, Chief Financial Officer, Darren Weiss, Chief Operating Officer, and Aaron Miles, Chief Investment Officer. During this call, we will discuss our business outlook and make forward-looking statements within the meaning of applicable U.S. and Canadian 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 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 and CDAR including our financial statements and MD&A for the quarter and year ended December 31st, 2022. In addition, throughout today's discussion, we will refer to non-GAAP financial 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 these 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 and available on our website 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 and less otherwise noted. I will now turn the call over to George. Please go ahead.

Good morning, and thank you for joining us. I'll begin today's call by highlighting our strong fourth quarter and full year 2022 performance. after which I will give Brett the floor to review the financials in further detail. I will then provide my thoughts on 2023 and speak to the exciting path we see ahead of us here at Verano. I will then close with a discussion regarding our capital allocation plans, including providing guidance around certain financial metrics. I am extremely pleased with what we were able to accomplish in 2022. Throughout the year, we've maintained agility in navigating our industry's evolving environment, managing the business by diversifying our portfolio, and improving efficiencies while aiming to protect the bottom line. Our strategy since inception has been to build a self-sustaining business set up to thrive even under extreme market uncertainty, making no assumptions about changes to federal law. To date, the net result of these efforts has been the creation of what we feel is one of the strongest cannabis companies in the industry, with the belief that it is positioned to endure difficult macroeconomic conditions while generating cash flow and building long-term value. Turning to the results, I am proud to report that in 2022, we generated over $879 million in revenue, representing 19% growth year-over-year and $324 million in adjusted EBITDA, representing a 37% margin. New Jersey and Florida were the largest contributors to our growth in 2022, which Brett will speak to in more detail later. Looking at the fourth quarter of 2022, results were in line with our guidance. with a revenue of $226 million and adjusted EBITDA of $79 million, representing a 35% margin. Fourth quarter retail sales were up 1.7%, driven by strength in our New Jersey operations as our final adult use location contributed a full quarter of sales, offsetting softness in Pennsylvania. We also had another quarter of improved vertical sell-through in our retail channels, increasing over 100 basis points sequentially to 47%, demonstrating the strength and breadth of our brand portfolio and SKU mix. Gross wholesale revenue for the quarter was down 6% sequentially, largely due to increased supply coming to the New Jersey market, which we anticipated, in addition to some price compression in Illinois. Notably, the Verano product line was the number one brand in New Jersey for 2022 based on sales data according to BDSA. So we are optimistic regarding future wholesale growth once additional dispensaries in the state open. We have always looked to appropriately supply each market in which we operate. So in Illinois and Massachusetts, we have scaled back total output and optimized headcount as we've seen some recent oversupply in these states. Please note we maintain the ability to ramp up production once we see the opportunity to put additional supply on shelves. Throughout 2022 and to date in 2023, we took decisive actions and made numerous investments to fortify our business, portfolio, organization, and value chain. We continued thoughtfully paced growth by adding 29 dispensaries during the year, a 32% increase in our retail footprint versus 2021. Adding 21 in Florida, two in Nevada, two in Pennsylvania, and four in West Virginia. Subsequently, we added five dispensaries across Florida and Pennsylvania. Similarly, we continued to increase our cultivation capacity, mainly in New Jersey on the launch of the adult use program and in Florida to support additional store count. In October 2022, we also strengthened our balance sheet by refinancing our debt in a rising rate environment, which included significant optionality by allowing us to prepay the first $100 million with only a $1 million prepayment fee. We expect to be able to decrease our blended cost of capital by leveraging our unencumbered real estate. In addition, we continue to enhance and expand our portfolio of strong brands. First, by launching Savvy, a value-tiered brand which was quickly embraced by consumers with a brand representing 15% of Verano flower sales in the fourth quarter on a unit basis. On that note, we are very proud of how our brands have performed. For some, even with only a short time on shelves, According to BDSA, Savvy is now the number one top-selling large-format flower brand in Maryland after launching in the fall. Savvy holds a top-five spot in Massachusetts and Pennsylvania and a top-ten spot in Arizona and Illinois. As we expand this product line, we anticipate Savvy's popularity to continue to grow. We also launched Bits midway through the fourth quarter, which is a lower-dose edible line paired with a range of adaptogens. Bits is now the top 10 best-selling edible brands in a number of our key markets. Lastly, our Verano brand continues to perform well. Per BDSA, Verano is ranked as a top five brand nationally. Of note, Verano's brand performance is particularly compelling given that we only produce in seven of the 13 states included in this data set. In addition, we continue R&D as we explore new brands and form factors. Specifically, we've seen success with our new line of solvents extracts and have plans for launches in additional select markets over the coming months. Relatedly, we also successfully launched a niche line of specialized infused pre-rolls at a premium price point in Illinois. We anticipate rolling this out in other markets throughout the year. In an effort to provide deeper insight into our business, we want to highlight a few efficiency metrics that management utilizes to monitor and evaluate our business. For example, We closely track dollars per labor hour, which helps us determine how efficiently our retail outlets operate. I am pleased to report that this measure increased over 26% quarter over quarter. Similarly, we look at transactions per head at retail, which also went up 14% quarter over quarter. At our CPG facilities, units produced per head increased 6%, while cost per gram decreased 9% sequentially. These metrics demonstrate our continued operational improvements. I am very pleased with what we accomplished, even while navigating a complex and challenging inflationary environment. And now I will turn it over to Brett to cover the financial results before I provide a more detailed outlook for 2023.