Verano Hldgs Corp

Ladies and gentlemen, good morning. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Verano Holdings Corporation second quarter 2023 earnings conference call. Today's conference is being recorded, and 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 that 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 1 a second time. Thank you, and I will now turn the conference over to Juliana Patera, Vice President of Investor Relations. You may begin.

Thank you, and good morning, everyone. Welcome to Verano's second quarter and 2023 earnings conference call. I am joined today by George Arcos, Chief Executive Officer and Founder, Brett Summerer, Chief Financial Officer, Darren Weiss, President, 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 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 to differ material 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 for the quarter ended June 30, 2023. In addition, throughout today's discussion, we will refer to non-GAAP financial measures that do not have any standardized meaning prescribed by GAAP. Management believes non-GAAP results are useful to enhance the understanding of the company's ongoing performance, that 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 unless otherwise noted. George, please take it away.

Good morning, and thank you for joining our second quarter 2023 earnings call. Today marked another quarter of progress for Verano, in which we achieved record revenue generating 3% sequential top-line growth and 31% adjusted EBITDA margins. Our results continue to exceed our internal expectations, which speaks to the strength of our strategy of positioning ourselves to capitalize on new adult use markets, designing and deploying a comprehensive brand and product innovation blueprint, and building the business to continue to deliver near and long-term value in the current environment. In light of the strong performance, I am proud to announce that we are raising the lower end of our 2023 free cash flow guidance to $65 to $75 million, up from $50 to $75 million. Today, I'll speak to the quarter in more detail before passing it to Brett for a review of the financials. I'll then close by covering the many positive catalysts we see ahead, driving Verano forward. The second quarter was marked by relative pricing stability in retail and wholesale versus the first quarter. While some markets, such as Pennsylvania and Ohio, continued to experience some pressure, we were very pleased to see that, on average, across our portfolio, prices seemed to have mostly stabilized. As usual, we plan to continue avoiding irrational pricing strategies and will work to maintain responsible levels, which reflect a balance between appropriately responding to market dynamics to remain competitive and maintaining profitability. This story played out in Illinois across both retail and wholesale. Though wholesale revenue was down 10% year-over-year, our data shows that double-digit pricing compression in the market outpaced this decline. Although we made market adjustments to mitigate pricing misalignment, we were successful in avoiding the significant discounting that seemed to ripple across the state. Retail revenue was only down 7% year-over-year despite the country-count growth in the state, which by our measure is up about 20% in 2023 alone. On the CPG side of the business, I am excited to report that we have been growing wholesale market share the last few months, which we believe reflects the success of our brand strategy. Looking at Florida, sales for the quarter were roughly flat year-over-year, and we are pleased with these results. as we have been able to stay out of the aggressive discounting occurring in the state. We will continue to sell products at prices which reflect the quality of our brand in conjunction with leveraging our tiered value offerings to broaden our reach and expand wallet share. We have maintained our market share of over 10% in the second quarter, measured by ounces sold, similar to that in the first quarter. Given that we are priced above the state average and the state only reports market share and volume, We believe our true market share in terms of revenue in the state is in fact much higher than 10%. Turning to Connecticut, its adult use market remains steady, with our American location continuing to perform at about two and a half times sales versus the prior year period. From a macro perspective, we estimate that our House of Brands holds over 40% market share in the state. We recently opened our first social equity joint venture location to adult use consumers in Norwich, and look forward to opening our remaining five locations over the remainder of the year and beyond. Unfortunately, many states have launched programs that, although often well-intentioned, have made it extremely difficult for social equity entrepreneurs to create and maintain viable businesses by isolating them without access to capital. Connecticut's program, however, promotes social equity business by allowing companies like Verano to share our industry expertise and contribute financially in a space that is starved for capital. We commend the state of Connecticut for structuring social equity in a way that sets entrepreneurs up for success. Our business in Maryland is also performing well after seamlessly transitioning to its adult use program on July 1st. Initial results have been in line with our expectations, which we attribute to the advanced modeling capabilities we developed from our extensive operating experience and history transitioning medical to adult use markets. So far, our dispensaries are posting a similar adult-use bump than top-line to what we've seen in Connecticut, with retail sales trending slightly upwards each week. But still in its early days, we'll be watching this new adult-use market closely as it matures. And moving to New Jersey, the market remains a strong performer, with our net wholesale revenue up nearly 50% in the second quarter versus the prior year period. Relatedly, according to BDSA, Our overall market share remains strong at over 21%, the largest in the state, with our namesake Verano brand commanding the number one position as well. We launched Savvy in the tail end of the quarter, which we believe contributed to our market share growth and speaks to the brand power within our strategically developed house of brands. This success in New Jersey is a fantastic example of our data-driven brand strategy in action. We thoughtfully evaluate consumer data and demand. in order to develop and deploy new brands. Launching an individual market is only once supported by the data. Last year, we launched our value tier in most markets while purposely delaying its launch in New Jersey as the premium brands continued to dominate. This spring, we began to see a slight change in consumer patterns in New Jersey. Anticipating that these market dynamics would continue, we proactively launched our value tier in June. We continue to value innovation and brand development. and will work to serve consumer needs as preferences evolve. Holistically, we leverage our sophisticated operations and advanced automation to remain ahead of the curve and enable rapid-speed markets. Our operations continue to improve upon their best-in-class baseline. On the wholesale side, units per hectare increased 60% in the first half of 2023 versus the prior year period, and grams harvested per plant has increased 15% year-to-date. On the retail side, we've increased transactions per headcount by 26% in the first half of 2023 versus the prior year period. While we believe we have the top operations in the space, we maintain our ethos of continuous improvement, constantly searching for additional efficiencies. And now I will turn it over to Brett for a detailed review of the financials.