Verano Hldgs Corp

Thank you for standing by. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the Verano Holdings second quarter 2024 earnings conference call. 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 star followed by the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star one. Thank you. I will now turn the conference over to Juliana Pertera, VP of IR. Please begin.

Thank you and good morning, everyone. Welcome to Verano's second quarter 2024 earnings conference call. I am joined today by George Arcos, founder and chief executive officer, Brett Sommer, 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 results or events 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, 2024. 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 unless otherwise noted. And now over to George.

Good morning and welcome. I am very pleased to share our second quarter results this morning, demonstrating wholesale growth in key markets and reliability in our margin profile. Performance over the quarter was in line with our previous guidance, with overall strength in net wholesale revenue offsetting some continued pressure from retail. Leaning into a long-term growth mindset, Verano has also been on the offensive these last few months. announcing a creative M&A just last week. I'll get into more details shortly, but we've been proactively and aggressively pursuing smart growth and expansion, and I am tremendously proud of what our team has accomplished, especially with some of the industry's most exciting catalysts on the horizon. This morning, I will cover some performance updates from the second quarter and provide an outlook on the many catalysts we have ahead of us over the next few years. But first, I want to start by highlighting last week's announcement that we've entered into agreements to acquire licenses in both Arizona and Virginia. Virginia, in particular, as a new limited license market for Verano, is incredibly exciting. Upon closing, Verano will have a 66,000 square foot cultivation and production facility, as well as six dispensaries. As one of only four operational producers in the market, Verano will serve as the sole cannabis cultivator and retailer in the southeastern and eastern portion of the state across populated regions such as Virginia Beach, Chesapeake, and Norfolk. In addition to this exclusivity, Virginia's unique program structure also gives us the ability to deliver our products to both third-party retailers and patients throughout the state. Bringing our portfolio of brands and products to an entirely new state provides us the ability to instantaneously and significantly expand our addressable and user base in a market with attractive pricing. Our entrance into Virginia is the culmination of a years-long effort to find a pathway into this lucrative, limited-license state, particularly with an adult-use transition on the horizon. We look forward to serving the nearly 2 million residents and 14 million tourists in our exclusive region, as well as throughout Virginia. In Arizona, the transaction provides deeper penetration into the mature Arizona market, which upon closing will give us eight dispensaries and three cultivation facilities. Arizona was already a top five revenue contributor for us, so we're excited about leveraging our scale and expanding our reach in the state. Once both the Virginia and Arizona transactions close, our diverse portfolio will grow to 14 states and 150 stores. We expect to close on all three acquisitions within the coming weeks, depending on regulatory and other approvals. As discussed on so many of our prior calls, we have built a strong capital allocation strategy in which we look to deploy capital in the most efficient manner. This includes growth-driven CapEx, strengthening the balance sheet, and a disciplined approach to M&A, requiring us to exercise patience given industry volatility. But with the recently announced transaction, we believe our patience is paying off. Moving on to the quarter, I am very pleased to report revenue of $222 million in line with our previous guidance. Adjusted EBITDA was $71 million or 32% of revenue above both the prior quarter and the prior year period. Our consistent margin profile speaks to our never-ending focus on efficiencies and cost management in an environment of price declines and rising costs. Before turning it over to Brett, I'd like to cover a few markets specifically, beginning with Florida. We remain tremendously excited about the prospects of this state and expect more growth in back half of this year. As discussed in our last call, we took a temporary yet purposeful step to take some cultivation capacity offline in order to reconfigure rooms to allow for a larger canopy. Essentially, we took one step back in order to take significant steps forward. So far, we've made tremendous progress in retrofitting approximately 60% of the flower rooms in our Apollo Beach facility in order to expand. We knew this meant we would encourage short-term impact output, but we felt the move was prudent and necessary. As always, we strive to prioritize the company's long-term growth paths and feel the short-term variability is well worth it. Overall, we believe our Florida output bottomed out in July due to this construction, and we expect output to continue to grow over the coming months. Next, in New Jersey, we continue to maintain a dominant brand position in the top two of total market share. Additionally, pricing remains solid. This stage of an adult use program typically brings price compression, so we're quite pleased with New Jersey's relative stability. As a number one brand in 2023, according to BDSA, Verano is trusted and valued in New Jersey, underscored by our wholesale relationship with nearly every operating dispensary. And though we see the craft growers beginning to gain market share, we remain committed to our wholesale presence as one of the state's market leaders. We believe the new dispensaries in the state will continue to look at Verano's product quality, availability, and reliability. And in Illinois, we continue the trend of net wholesale revenue growth, which increased 25% versus both the prior quarter and prior year period. Similar to New Jersey, we are competing with new craft growers. However, we modestly grew share in the second quarter versus the prior year period. Moving on to some forward-looking thoughts. Verano has always focused on the long-term picture, and I'd like to speak a bit more to what we see ahead of us in terms of upcoming catalysts. Looking ahead, we of course await what we expect will be the DEA's final rule to reschedule cannabis to a Schedule III drug. As we've discussed, this would greatly lower our tax burden by our estimates based on prior year periods by more than $80 million annually, among other positive possibilities. We pride ourselves on our successful legacy of transitioning operations in medical markets to meet swelling adult use demand. We have successfully navigated this shift in eight markets to date, including Ohio, which just launched yesterday, and are positioning ahead of an additional three markets that we anticipate may launch an adult use program in the coming years. This includes Florida, Pennsylvania, and now Virginia. First, we have Ohio adult use, which began just yesterday. BDSA estimates Ohio will generate over $1 billion in revenue next year, and we had already ramped up production in our facility to meet elevated demand. Our sixth dispensary location has been secured and will be located at Antwerp, only a six-minute drive from the Indiana state line and one of the closest locations to Fort Wayne, Indiana, right off of a major highway. We expect this location to be up and running within the next couple months, depending on the state's timeline, of course. We were thrilled to welcome new consumers yesterday in what was our eighth medical to adult use transition and look forward to continuing to welcome Ohio's new adult use consumers. As outlined in our last call, we believe an adult use program in Florida could translate to an incremental 300 to 450 million of annual revenue from what is one of our highest margin markets. As a result, we are understandably laser focused on the election in November where adult use will appear on ballots across Florida. We see Florida easily becoming one of the largest markets in the U.S., especially with its massive tourism industry, which welcomed 140 million tourists in 2023 alone. And as one of the larger contributors to the Smart and Safe Initiative, we are collaborating with our peers to educate the voter base about the benefits of a legal adult use cannabis program. Thus far, we have already contributed over $2 million to the campaign. We continue to be incredibly optimistic given polling consistently trending above the 60% threshold. Additionally, Pennsylvania appears to be inching closer to adult use. So far, the Commonwealth has decoupled 280E, which we anticipate will incrementally, albeit slightly, add to our bottom line. Looking ahead, our hopes remain high that we may have a 2025 adult use program on the horizon in Pennsylvania. And Virginia marks yet another opportunity to implement our steadfast strategy in building robust operations and goodwill in a medical market. Laying the groundwork for massive growth in an adult use transition. While adult use timelines are notoriously difficult to estimate, we believe there's a strong possibility that Virginia could launch an adult use program in 2026. BDSA is already estimating 430 million in total cannabis sales in Virginia for 2027. Given the uncertainty surrounding the timing of the closing of all of the recently announced transactions, we are refraining from providing specific top line guidance at this time. However, despite the many unknowns in the industry, some of which make forecasting even next quarter's revenue a challenge, I am grateful that our operational machine has helped to consistently generate reliable and strong margins historically. We are always focusing on operational efficiencies to mitigate pricing declines and inflation. I'll now pass it to Brett to cover the financials in detail.