Verano Hldgs Corp

Thank you for standing by. My name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Veranus First Quarter 2025 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, click the press star, followed by the number one in your telephone feedback. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Steve Muzica, VP of Communications. Thank you. Please go ahead.

Thank you, and good morning, everyone. Welcome to Verano's first quarter 2025 earnings conference call. I am joined today by George Argos, founder and chief executive officer, Rich Trapchak, chief financial officer, and Aaron Miles, chief investment officer. During this call, we will discuss our business outlook and make forward-looking statements within the meeting of applicable U.S. and Canadian securities laws. which are based on management's current assumptions and expectations. Such forward-looking statements involve unknown risks, uncertainties, and other factors that may cause the actual results, performance, and achievements of the business or developments in the 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 CDER, including our financial statements for the quarter ended March 31st, 2025. In addition, throughout today's discussion, we 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.verona.com, which also includes the reconciliation of these measures to their respective most directly comparable GAAP financial measures. Lastly, all currencies in U.S. dollars unless otherwise noted. And I'll pass it over to George.

Good morning, and thank you for joining us today. I am pleased with the progress we made on 2025 priorities we outlined last quarter, which include driving innovation, automation, differentiation, and efficiencies across the business, while keeping quality at the center of everything we do. This quarter we seized opportunities to strengthen our core business by identifying efficiencies and lowering SG&E expenses, optimizing our footprint, and making strategic investments we believe will provide significant benefits in the long term. Although we continue to navigate industry dynamics, we advanced strategic objectives that we are confident will support long-term growth initiatives and strengthen Verano in the future. We generated revenue of $210 million gross profit of $100 million, and adjusted EBITDA of $54 million, or 26% of revenue. Our margin profile this quarter included absorbing an inventory adjustment driven by higher yields, employee compensation program changes, nearly a full quarter without Arkansas retail revenue, discounting activity, and impacts from our wholesale accounts receivable strategy. However, we anticipate the cost management and efficiency measures we are implementing will strengthen our core business and fortify our balance sheet moving forward. And we expect to see margin improvement heading into the back half of the year. The $5 million decrease in SG&A expenses we recorded versus the prior year period is notable given the number of multi-state product launches and new store openings we executed during the first quarter. The SG&A savings we achieved while still expanding our product portfolio and retail footprint is a testament to our team's operational excellence and a clear alignment across the organization. Throughout the quarter, we took additional steps to optimize and rebalance our footprint, which will allow us to sharpen our focus and resources on markets we feel are primed for growth. After terminating commercial agreements in January pertaining to a retail dispensary in Arkansas, and selling real estate leased by the dispensary for a profit, we also made the decision to pause wholesale operations in Massachusetts, which has always been a secondary market for Verano. Given sustained pricing compression and increased competition, we began winding down wholesale operations in Massachusetts at the beginning of the quarter, but maintain a retail presence with two existing Zenleaf locations in the state. We've also taken proactive steps to strategically expand our footprint this year, To date, we've opened two move dispensaries in Florida and an additional Zenleaf location in Connecticut, strengthening our presence in states we believe offer greater long-term growth prospects. In the near future, additional expansions also include Zenleaf Antwerp, our sixth Ohio dispensary, which we anticipate opening soon near the Indiana border by Fort Wayne. And in Connecticut, we're on track to open Zenleaf Enfield later this month. an equity joint venture location that raises our statewide total to seven dispensaries. First quarter retail revenue was $169 million, up slightly versus the prior year period. The results were driven by organic growth in Ohio as the state enters its full year of adult use sales, contributions from acquired cannabis assets in Virginia and Arizona, and strong results in Florida. Along with typical first quarter seasonality, Price compression, nearly a full quarter without Arkansas revenue, and ongoing discount activity drove the flat year-over-year retail results. We recently appointed a seasoned leader with decades of mainstream retail experience as Executive Vice President to spearhead our retail strategy. And we look forward to elevating the shopping experience at Zenleaf and MOVE under his leadership. Diving into Florida, our largest retail market with 81 operating move dispensaries, we've continued driving positive momentum throughout the year after firmly recapturing and sustaining the number two market share position in the state, according to OMMU data. We recently reached new heights around the 420 holiday after selling nearly 75 million milligrams of THC in multiple weeks. Apollo Beach facility upgrades we completed in the fourth quarter increased capacity, efficiency, and yields, while improving product quality, supply, and variety. These enhancements drove the best first quarter ever for our Florida business, with top-line results partially muted by ongoing discounting and promotional activity in the market. With several new dispensaries planned this year, additional CPG capacity, a robust new product pipeline, and the state's organic patient growth, We remain very bullish on our Florida business in 2025. From a wholesale perspective, we generated $80 million in the quarter, an 8% decrease versus the prior year period, excluding intersegment eliminations. The year-over-year decline resulted from pausing Massachusetts wholesale operations, a slight decline in Illinois, and our ongoing focus on only selling to credit-worthy customers. We've successfully reduced our accounts receivable balance by $7 million since the third quarter of 2024 by working with partners on payment solutions. And by addressing these issues early on, we have positioned the company for more success in the back half of the year. Additionally, from a talent perspective, we also welcomed a seasoned executive with extensive cannabis experience as EVP of wholesale and look forward to his contributions elevating our national wholesale strategy and executions. During the quarter, we also continued launching new product innovation across our Savvy and Essence portfolios, targeting the high-growth vape and pre-roll categories in key markets. Since December, Savvy vape market share has more than doubled and is now the number five brand across relevant markets, according to BDSA. We also introduced new SKUs in Virginia as we continued diversifying our product portfolio for patients in the Commonwealth. and drove wholesale gains in Maryland, Pennsylvania, and Nevada versus the prior quarter. We will continue to build on the success of these new product launches, and I look forward to sharing additional updates as new items hit dispensary shelves throughout the year. We also continued implementing cutting-edge automation technology across our operations to streamline the business and increase productivity. We've scaled new manufacturing technology that exponentially increases efficiency and output, unlocking the opportunity to launch new products that deliver consumer affordability and quality. New technology and best practices aimed at maximizing efficiency and output are generating results versus the prior year period. Across our retail business, dollars per headcount increased over 7% and 32% across our U.S. and Florida operations, respectively. And on the CPG side, in Florida, we increased grams per headcount by 33% and grams per plant by 22%, and drove gains of 7% in grams per headcount and a modest increase in grams per plant across the rest of our U.S. facilities. These metrics demonstrate the effectiveness of our strategy to invest in the latest automation technology. We're gaining efficiencies and managing costs without sacrificing the quality of operations and products. I've also previously mentioned strategic investments in our talent and brands. And to that end, it's my pleasure to formally introduce Rich Trapchick, who was appointed and promoted as chief financial officer last month. Rich brings more than three decades of diverse financial and accounting leadership experience across a variety of industries to Verano. In addition to his role at the company, he also serves on the board of the Illinois CPA Society and is a member of the governing council for the AICPA. I have full confidence in Rich's ability to take our team to the next level and look forward to his contributions to the business. With that, Rich, I'll now pass it over to you.