Verano Hldgs Corp

Hello, everyone, and welcome to Verano Holdings' third quarter 2024 earnings conference call. Please note that this call is being recorded. After the speaker's prepared remarks, we will have a question and answer session. If you'd like to ask a question during that time, please press start and then one on your telephone keypad. Thank you. I'd now like to hand over to our first speaker for today, Juliana Patera, Vice President of Investor Relations. You may now begin.

Thank you and good morning everyone. Welcome to Verano's third quarter 2024 earnings conference call. I am joined today by George Arkos, Founder and Chief Executive Officer, 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 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 for the quarter ended September 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 be not 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 respective most directly comparable GAAP financial measures. Lastly, all currency is in U.S. dollars unless otherwise noted. I'll now pass it to George.

Welcome and thank you all for joining this morning. It's been an exciting week for the cannabis industry and our nation. And although we'll talk about third quarter performance for some of our key markets, we will begin this morning by diving into the impacts of Tuesday's historic election. As you all know, a majority of Floridians came out to the polls on Tuesday and voted in favor of safe legal access to cannabis. Almost 56% of voters said yes to adult use. a higher percentage of voters than approved adult use sales in California when they legalized. And almost as many Floridians expressed their support for adult use cannabis as voted for President-elect Donald Trump. Unfortunately, the 60% approval threshold was just too high to overcome. We are, however, deeply encouraged that a strong majority still said yes. and believe we will still see an adult use program for Florida sometime in the future as its residents come to fully understand the negative impacts of an unregulated and untaxed illicit market. We remain committed to the Florida medical market and as we've discussed on previous calls this year, have been busy expanding capacity in the state irrespective of adult use. And while our Apollo Beach facilities enhancements were needed to help us better serve the medical demands of today in Florida, we didn't feel expansion of that facility alone was enough to meet the growing medical demands of tomorrow. So back in the summer, we embarked onto our third Florida cultivation facility in Ocala, which will be a world-class cultivation and production facility built leveraging our years of operational expertise to improve efficiencies, streamline distribution, reduce production costs, and increase profitability in the Sunshine State. And while the vote didn't go in our favor Tuesday night, we are proud of the investments we've made in such a profitable medical market and are confident we will realize a strong return on these investments. These efficiencies will allow us to more strongly compete on price point with our top tier products. Additionally, Ocala is a large facility that provides optionality to scale up commensurate with market growth. And though had Florida passed Amendment 3, we would have had another growth catalyst behind us. We've always built our business to thrive in the current environment with a focus on margin preservation. While the last few months we've been focused on Florida, we are returning full focus to margins and cost management. Moving forward, we will be fully engaged in evaluating efficiency improvements and cost-cutting measures across the business. As you've seen from recent OMMU volume data, we have been steadily growing market share over the past few weeks, reflecting the increased output we began to see late September from our Apollo facility. Our share of both milligrams of THC and ounces of flour surged in October to the number two spot, our highest volume share year to date. Returning to the election, I think it's important to recognize that this was the first presidential cycle in history where we saw both candidates not only make cannabis a topic of national interest, but express their unequivocal support for liberalization of cannabis laws. It was comforting knowing that either way the top of ticket turned out, we would have an administration supportive of the historic rescheduling process currently underway. A Schedule III classification brings a world of opportunity for Verano, the largest of which is a tax code similar to that of other corporations in the US, saving us what we estimate would be over $80 million annually based on our 2023 results. We continue to prep internally for a final Schedule III ruling so that we can readily capitalize on any and all opportunities at our disposal. We are excited to embark on a new partnership with the Trump administration to usher in a fresh era for legal cannabis, while simultaneously edging out the dangers of the illicit market. With the ALG hearing likely scheduled for early next year, we are hopeful that the industry will have finality regarding a Schedule III decision sometime next year. President-elect Trump's pro-cannabis statements were a continuation of a growing trend of bipartisan support. In addition to supporting legal adult use sales, he has said, and I quote, we will continue to focus on research to unlock medical uses of marijuana to a Schedule III drug and work with Congress to pass common-sense laws, including safe banking for state-authorized companies. We have been begging for common sense laws for years, so we welcome this approach with open arms. Additionally, our read is that his administration will be friendly towards banking acts such as a safe or safer acts, which could not only expand our banking access, but also reduce our cost of debt. The term Republican is no longer associated with anti-cannabis sentiment. This is principally a generational issue, not left and right. and demographic trends are all moving in the direction of greater and greater support for common sense cannabis laws. Additionally, this isn't the environment of eight years ago. Cannabis has come an incredibly long way with a majority of Americans in support of legal cannabis sales. We believe the progress from the last decade will continue and affect change and are pushing forward on a number of fronts, including our litigation against the government in our Commerce Clause case to ensure that progress continues. Moving on to other market updates, we continue to see increased competition from new retail openings in Illinois and New Jersey. This normalization in New Jersey has been stronger and more persistent than we had initially predicted a few quarters ago, with 25 new dispensaries opening in about the last three months alone. Plus, we've seen 18 cultivators, largely small-scale craft growers, begin wholesaling year-to-date. The good news is that the velocity of our retail declines has significantly slowed, with the third quarter only down 4% sequentially. As the pace of new openings slows, we anticipate hitting an equilibrium in the next few quarters but are bracing for some additional short-term pressure. The expanding retail environment in Illinois, with 55 dispensaries open year-to-date and 14 alone in the third quarter, has proven an opportunity for us on the wholesale side. Gross and net demand grew throughout the year and net wholesale revenue increased by 10% year over year. Given this upward demand trend, largely in flour, we reopened rooms in our cultivation facility and increased production. We continue to view growing dispensary counts as wholesale opportunity and will maintain our focus on growing Verano's total shelf space in Illinois. We were thrilled to close incredibly quickly in under a month on the Virginia and Arizona businesses from cannabis in August. the Virginia business is ripe with opportunity as we've begun launching our Verano products. With further enhancements and additions forthcoming to the business, all of which require very little capex, we look forward to bringing to market products Virginia has not seen before. Lastly, Ohio's adult use program had a modestly strong start with August and September net retail revenue each up about two times versus July. On the wholesale side, we've ramped up operations, selling into over 70% more doors and increasing net wholesale revenue by 2.5 times versus the prior year. Additionally, we increased our vertical mix by about 10%, up to 36% for the third quarter versus the prior year. We anticipate opening our Antwerp location near the border of Indiana and the Fort Wayne metro area in the next few months, which we expect to benefit from some level of cannabis tourism, bringing our footprint to six dispensaries in the Buckeye State. We had a busy quarter and I am very proud of our team for nimbly navigating changing retail landscapes, welcoming and integrating new lines of business and responding in real time to hurricane risks and disruptions. Thank you all for your continued persistence. And now to Brett with the financials.