Verano Hldgs Corp

good morning ladies and gentlemen 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 fourth quarter and full year 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 one 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 fourth quarter and full year 2023 earnings conference call. I am joined today by George Arkos, Chief Executive Officer and Founder, Brett Sommer, Chief Financial Officer, Darren Weiss, President, 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 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 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 for the year and quarter ended December 31, 2023. All financial results for the fourth quarter and year ended December 31, 2023, and related comparisons to prior periods included in this release have not been audited and were prepared by the company prior to the release of the company's independent auditor's audit report. 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 that non-GAAP results are useful to enhance the understanding of the company's ongoing performance, but these are supplemental to and should not be consideration 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.ferrando.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 unless otherwise noted. George, please take it away.

Thank you for joining today, and I hope everyone had a nice start to the year. I am very proud to discuss this past year's results with you, along with the many milestone achievements led by our hardworking team here at Verano. Today, I will provide an overview of the fourth quarter and full year 2023, followed by a deep dive into some of our larger markets before passing it off to Brett to cover the financials in more detail. I will then close with my thoughts on our outlook for 2024 and the many opportunities that lie ahead of both the industry and Verano specifically. To start, we delivered against our full year 2023 free cash flow guidance, generating $73 million in free cash flow, what we expect may be the largest for the industry in 2023 given peer guidance. We had a record year with $938 million in revenue or 7% growth versus the prior year. And we maintained our focus on price and cost management, which helps us drive 32% adjusted EBITDA margins for the year, supported by a strong vertical mix and a disciplined pricing strategy. We continue to execute against our growth strategy, targeting practical pockets of growth across our retail footprint and product portfolio. Throughout 2023, we added 16 dispensaries across key markets, including Florida, Connecticut, Pennsylvania, and West Virginia. bringing our year-end dispensary count to 136. We have also continued building out throughout 2024 and now stand at 138. Along with retail growth, our innovation pipeline was humming all year, evidenced by our over 70 new products deployed across our multi-state footprint. For example, Savvy and Bits, two of our younger brands, grew to represent a combined 22% of our total net revenue within just a year of their launch. And the entire Verano product portfolio gained over 225 bps in market share throughout the year across our BDSA trackable markets. We focused on leveraging the strong brand portfolio to take advantage of organic growth opportunities, including new adult use markets. Notably, we continue to be an early leader in markets that transition to adult use. In Connecticut and Maryland, both of which transitioned to adult use in 2023, We were able to smoothly execute two successful program launches as defined by improved output metrics in both markets. By strategically timing our hiring to align with our projected growth and maintaining an eye for efficiencies, these two markets saw average units produced by headcount increase 47% during the first quarter of adult use sales as compared to their prior quarters. In that same vein of efficiencies, automation continues to be a priority for us as we delivered continued cost savings and enhanced operating procedures. We implemented additional automation measures across New Jersey, Illinois, and Florida, which contributed to an improvement of 26% per units produced per headcount across those three states for 2023, off an already strong base in 2022. We believe automation is critically important to the business and plan to continue investments in efficiencies as we see the opportunity to do so. We continue to partner with industry representatives in state lobbying efforts, which bore many victories with Illinois, New Jersey, and Connecticut all decoupling cannabis from the 280E tax burden. We commend these three states for implementing a fair tax scheme that will better equip small cannabis businesses to succeed and thrive. These three states represent some of our top wholesale and retail contributors, and their fair approach helped us save $16 million in tax liabilities in 2023. Though I hesitate to use the word savings, as that implies we are somehow now tax advantage versus other industries in the state, when in fact we are only now taxed alongside them, against our taxable income. Imagine the formidable cash flow potential we'd have if and when 280E is decoupled. from all of our states and at the federal level. Regarding capital allocation, we believe we delivered on our goals made one year ago to leverage our real estate at improved mortgage rates, efficiently manage through our balance sheet and tax payments, and build cash for flexibility. We completed over 50 million in real estate loans in 2023, including both lower cost of capital new loans as well as refinancings, maintaining a reduced blended cost of capital versus lease-heavy peers. Additionally, as we previously guided, we maintained our income tax payable balance, ending the year at similar levels compared to the prior year. Finally, after growing our cash balance through the year by $90 million to a year-end balance of $175 million, we plan to put this cash to use and reduce our leverage on higher cost of capital debt. Flexibility in the credit agreement allows for nimbleness should any anticipated opportunities arise given the current political landscape. We have scheduled a prepayment under our senior credit facility of $50 million for April 30th, leaving us optionality to further pay down the credit facility at a time of our choosing, subject to advance notice obligations and potential prepayment premiums. For context, this $50 million in debt reduction will result in about $8 million in interest expense saving annually. Moving on to updates from some of our larger markets, I'd like to begin with New Jersey. As we noted last quarter, given the continued ramp up and normalization of dispensary count in the state, retail revenue declined to $26 million in the fourth quarter. Again, this was in line with our expectations. Keep in mind that at the beginning of 2023, there were only 19 dispensaries in the state, and by the end of the year, there were over 90. While we expect this market to remain competitive as additional dispensaries open, we have the opportunity to open seven social equity JVs, which we believe will help to offset increased competition. In the near term, however, we expect first quarter retail sales in the state to decline sequentially. On the wholesale side, the fourth quarter showed continued strength with our brand portfolio amongst the market share leaders for the state, according to BDSA. Additionally, we feel that states' dispensary openings will continue to offer wholesale opportunity this year, especially given Brano's strong brand awareness and popularity in New Jersey with cannabis consumers. Illinois shares some similarities with New Jersey in that many social equity dispensaries have opened and represent an increasingly competitive retail environment. However, we've developed an arsenal of new brands to combat this and grow our market share. such as the recent relaunch of the Essence brand on Green Wednesday, which contributed to significant market share gains. Throughout the fourth quarter, we increased our market share by over 20%, elevating us to the number three position in the state, according to BDSA. Illinois remains a key state for us, given the state's strong wholesale pricing versus the national average, and its over two billion of sales in 2023, which put it in the top five U.S. cannabis markets. In Florida, we exceeded our expectations for the quarter with revenue up nearly 11% sequentially. While we opened three new dispensaries there during the quarter, much of this outperformance was driven by market share gains. Move had an impressive quarter, gaining 90 bps of market share as measured by ounces sold versus the prior quarter. It bears war through feeding that we believe our market share as measured by volume understates our true market share of sales given our premium pricing positions. We believe this recent market share increase was due to our deeper product offering and focus on quality versus peers. Notably, we also achieved these gains while maintaining our premium pricing position relative to peers and with lower levels of discounting versus the prior year period. With support still trending quite favorably, we believe that Florida voters will approve the legalization of adult use consumption. In preparation, we anticipate opening a handful of new dispensaries this year and are already incrementally adding capacity in our Florida production facilities to meet both current medical and future demand. We look forward to what we believe will be a very sunny future in Florida. In Pennsylvania, adult use momentum has continued, which we believe may ultimately result in a 2025 adult use launch, given the strong support from the governor. With our 18 dispensaries, over 60,000 square feet of cultivation, and our expectation for a two to three times lift in revenue upon adult use commencement, we will be watching the Commonwealth very closely. Lastly, we are preparing for the much anticipated launch of adult use in Ohio. We are ramping up capacity and plan on adding one dispensary to today's five dispensary footprint, bringing our total to six. Given the significance of a new adult use program launch, We are optimizing everything in the state from SOPs to retail operations. Our expected two and a half times revenue lift, similar to that of Connecticut and Maryland, should provide a modest top line tailwind in 2024. Before I pass the call to Brett, I want to take a minute to thank our teammates across the country for an outstanding job in 2023. I am so grateful for our team's efforts, proven by the great results we delivered for the year. Not only did we accomplish a great deal, but we have a proven track record of delivering against our promises. And now I'll pass it off to Brett to speak to our financials in more detail.