Verano Hldgs Corp

Thank you for standing by and welcome to the Verano Holdings Corp Third Quarter 2023 Earnings Conference Call. I would now like to welcome Juliana Pitera, VP of Investor Relations to begin the call. Juliana, over to you.

Thank you and good morning everyone. Welcome to Verano's Third Quarter 2023 Earnings Conference Call. I am joined today by George Arcos, Chief Executive Officer and Founder, Brett Sommerer, 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 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 risk and uncertainties mentioned in our filings on EDGAR and CDAR, including our financial statements for the quarter ended September 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, 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 their respective most directly comparable GAAP financial measures. Lastly, all currency is in U.S. dollars and less otherwise noted. I'll now pass it to George.

Thank you all for joining us today. The third quarter was an exciting and productive time for Verano, highlighted by positive results and strategic enhancements across our business, and we are pleased to share details on our progress today. I will begin with a brief recap of our strong third quarter results before our president, Darren Weiss, provides commentary on legal and legislative developments. Our chief financial officer, Brett Sommer, will then provide a deep dive into our financials before our chief investment officer, Aaron Miles, covers capital market updates. I will then provide some closing thoughts and our outlook before taking questions. I am so appreciative of our team as they continue to set the industry standard on multiple fronts over the course of the quarter. Verano is not only thriving in the current environment, but we are executing on our plan to establish and run the business for long-term growth, enabling the company to navigate changing market landscapes and an otherwise challenging macro environment. We also recently took a major positive step forward by uplisting our publicly traded shares to CBO Canada which we believe strengthens our ability to move quickly to a US stock exchange if and when we receive approval to do so, which should open the doors to a new and larger investor base. We believe that the swift execution and elevation of our capital market strategy best positions Verano for access to more robust equity markets, especially as the US market dynamics continue to evolve. In preparation for possible new investment dollars and consistent with our desire to stand out as a market leader, we are proactively enhancing the transparency of our financial disclosures. This quarter, we have disclosed additional state-level data, which we believe will be meaningful to investors, especially given the opacity of the industry. Looking ahead, we plan to continue to lead the way in enhanced disclosure and will work to evolve and supplement our disclosures, particularly as we believe more robust reporting can help break down investment barriers for some institutional investors. Moving to third quarter results, we achieved $240 million in revenue, representing 5% year-over-year growth, led by increases in Connecticut wholesale sales and strong results from Maryland's adult use launch. Most significantly, we generated a record $37 million of net cash provided by operating activities in the corner, bringing our year-to-date total to $77 million. And with our CapEx guidance for the year, this implies delivering full-year net cash provided by operating activities of 102 to 113 million. Regarding free cash flow, we also generated 27 million in the quarter, bringing our year-to-date total to 51 million. Although many of our competitors only report on net cash provided by operating activities, we believe free cash flow provides a useful data point representing cash available to the business. even after funding growth initiatives. On our first earnings call this year, we stated our top priorities were strengthening our balance sheet and generating free cash flow. I believe we have set the standard for the industry with our progress year to date, and we will continue to prioritize the items throughout the fourth quarter. We increased our cash balance to $130 million, up from $103 million at the end of the prior quarter, consistent with our previously stated goal to build our cash balance. We believe available cash provides us more financial flexibility to take advantage of opportunities and manage our financial position, including debt reduction. As a reminder, we have a favorable prepayment fee of $1 million on the first $100 million of debt prepaid under our credit facility. And in October 2024, our prepayment fee and the debt balance is reduced to a mid-single digit percentage, further decreasing in October 2025. Given our progress year to date, I am pleased to announce that we are raising and tightening our full year 2023 free cash flow guidance to $72 to $76 million, up from $65 to $75 million. Note, this guidance includes an expected tax payment of around $50 million in the fourth quarter and is based on assumptions of operating in today's environment, making no assumptions of legislative moves or opportunities that may materialize in the space. As things progress, we may decide to utilize extra cash for strategic or growth opportunities. Moving to broader demand dynamics, we continue to see sustained demand across our portfolio. Consumers are consistently buying more product than ever in terms of units, and in turn, we are selling more product than ever, even in markets where we have hit retail caps and are subject to strict advertising constraints. While growing demand is often overshadowed by a focus on revenue trends, we believe growing demand is a positive structural indicator. In the third quarter, we increased units sold across retail and net wholesale channels by 19% year-over-year. Across our net wholesale channel, we increased units sold 10% year-over-year, and in our retail channel, we increased units sold by 23% year-over-year. And we see this trend in both nascent and mature markets. For example, in our more mature adult use markets of Arizona, Illinois, Nevada, and Michigan, total retail and net wholesale volume increased 18% versus the prior year, led by particular strength in Arizona retail. In Connecticut, one of our newer adult use markets, demand measured by total retail and net wholesale volume has grown steadily, up 4% sequentially. We're even experiencing demand increases in more mature medical markets, with total volume across Florida, Pennsylvania, Ohio, and West Virginia up 10% for the third quarter year over year. We believe that strong and growing consumer demand is a clear tailwind for our business, despite downward pressure on pricing in certain markets. And as prices and supply continue to stabilize, we believe the often overlooked demand story provides a recipe for organic growth. I would now like to take a few minutes to highlight some key developments in select markets before talking about brands. I'll begin with our two newest adult-use markets, Connecticut and Maryland. Connecticut continues to display strength with both retail and net wholesale revenue increasing each quarter this year to date. As of today, we have four open dispensaries, including two social equity joint ventures, and anticipate that our remaining four additional joint venture dispensaries will open over the course of the next year. Maryland has also performed well in its first quarter of adult use sales, with our branded market share growing steadily this year, now up to over 7%, which is within the top five for the state, according to BDSA data. And in Illinois, we are beginning to see some pricing pressure reemerge in the retail market from new social equity dispensaries. While we believe that ultimately these new dispensary openings will be a net positive for us, given they offer further wholesale opportunities, we see this as a headwind. Nonetheless, we continue to prioritize both our margin and maintaining our price points. In New Jersey, Verano remained the number one brand for the quarter, and Savvy, which was only recently released this past June, is already the number five brand in the state, according to BDSA. With competition increasing in New Jersey as additional retailers enter the market, we anticipate that our net retail sales will decrease mid to high single digits sequentially. However, we still expect opportunities for modest sequential growth in our New Jersey net wholesale revenue over the midterm, especially given our top brand positioning in the state. Turning to our branded products, I would like to take a moment to outline our progress in developing and deploying a growing portfolio of industry-leading brands. As many of you know, in our early days, we focused on premium positioning across our product lineup, which is arguably the toughest niche of brand segmentation. However, over the past 12 months, we have leveraged our deep data insights to develop and launch products to meet new consumer wants and needs, accelerating our brand releases. We have launched over 100 products over the past 12 months, which contributed 43% of our company revenue in the third quarter, up from 21% in the third quarter of 2022. We view this as a testament to the new consumer segments we're reaching with a much more extensive suite of brands and products. From brand extensions to our savvy lineup, including rough-cut flour and single-serve edibles to solventless extracts and infused pre-rolls, we have turbocharged our innovation and creative engines, striving to deliver consistent, high-quality, and wallet-friendly products with the target of maintaining strong margins and generating free cash. And as a data-driven company, we are constantly evaluating new information and persistently pursuing innovation, so I expect you'll continue to see exciting, innovative launches from us. And now I'll turn it to Darren to provide some commentary regarding legal and legislative developments.