TerrAscend Corp.

Good afternoon, my name is Chris and I'll be your conference operator today. At this time, I would like to welcome everyone to Tarasen's second quarter 2024 financial results conference call. Joining us for today's call is Jason Wild, Executive Chairman and Ziad Ghanem, President and Chief Executive Officer, and Keith Stauffer, Chief Financial Officer. Our remarks today include forward-looking statements, including statements with respect to the company's outlook, including the company's expected financial results for the third quarter of 2024, and estimates and assumptions relating thereto, and the company's expectations regarding its new market opportunities, such as Ohio, the likelihood and benefits of the company's tax refund claims for past years, the expectations regarding regulatory reform, and the potential benefits thereof. Each forward-looking statement discussed in today's call is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. The actual result and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance. Additional information regarding these factors appears under the heading Risk Factors and the company's Form 10-K, filed with the Securities and Exchange Commission, or the SEC and other filings that the company makes with the SEC from time to time, which are available at www.sec.gov on CDAR+, and on the company's website at www.terrasen.com. The forward-looking statements in this call speak only as of today's date, and we undertake no obligation to update or revise any of these statements. Also during the call, the company will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release and on our quarterly report on Form 10Q for the quarter ended June 30, 2024, which you can find on the company's Investor Relations website or on the SEC and CDAR Plus websites. I would like to introduce Mr. Jason Wild. Please go ahead.

Good evening, everyone, and thank you for joining us. The team and I are pleased with our accomplishments thus far in 2024. Financially, we reported yet another quarter of year-over-year net revenue and adjusted EBITDA growth, as well as positive operating and free cash flow. For the quarter, net revenue totaled 77.5 million, an increase of 7.5% year-over-year, and adjusted EBITDA from continuing operations totaled 15.6 million, an increase of 21.9% year over year. Our second quarter of 2024 marks our eighth consecutive quarter of positive cash flow from continuing operations, totaling 13.1 million compared to 1.8 million for the same period last year. We also generated positive free cash flow for the quarter, totaling $11.7 million. In addition to driving revenue and profitability, refinancing of our debt has also been a priority. We work diligently through a competitive process and are pleased to have recently closed on a $140 million senior secured loan that matures in August of 2028 and contains no prepayment penalties. This provides optionality for Terrasen to capitalize on future progress in federal reform or on any substantial interest rate improvement based upon macroeconomic factors. The proceeds of this loan are being used to pay down our existing debt which matures later this year and carried a slightly higher blended rate. The balance of the proceeds are available for M&A transactions focused on our geographic expansion plans. I'd like to thank Focus Growth, the lead lender on this new loan, as well as the other lenders who participated in the syndicate for their trust in and support of TerraCent. We have enjoyed working with the Focus Growth team on this transaction. and are already working closely together to evaluate additional opportunities. I also elected to participate in the loan in line with my ongoing support for the company on both the equity and debt sides of the capital structure. Completing this deal was an important milestone for the company as this refinancing provides us with the financial flexibility and optionality to execute on our growth strategy. I'm thrilled that we will now have no other material debt maturing until late 2027. For several quarters, we have highlighted the greenfield expansion opportunities and possible transformational deals that we are actively pursuing. We believe that Terrasen's focused approach has put us in a differentiated position compared to our peers to invest in the best geographies and assets at attractive valuations. On this subject, the Midwest is a priority for us. We have openly discussed our interest in Ohio as the state begins to implement adult use. We are focused on the larger Tier 1 licenses, which would allow us to operate up to 100,000 square feet of canopy and up to eight dispensaries. Today, we are in active discussions with multiple operators in Ohio and expect to close in on at least one of these opportunities in the near term. When we enter any market, our goal is to be a market leader. Our expectations for Ohio are no different. With Michigan and soon Ohio, we expect to be able to leverage our existing SG&A infrastructure in the Midwest, enabling us to make Michigan and any new states more profitable for us combined rather than on a standalone basis. From a federal perspective, we continue to see progress with cannabis reform. July 22nd was the deadline for the 60-day public comment period regarding the DEA's proposed rescheduling rule. According to data from Headset, over 92% of those comments were in favor of rescheduling or descheduling. While this is still subject to final ruling by the DEA, we believe that rescheduling cannabis to Schedule 3 would be a landmark event for Terrasen, the entire cannabis industry, as well as cannabis consumers and patients. Rescheduling would result in the elimination of punitive, unfair tax treatments. It would also provide cannabis companies with greater access to capital at reduced costs and unlock restrictions on medical research. While encouraged by the rescheduling process and monitoring the actions being taken in Congress, we are proud to have taken a leadership role as a foundational supporter of the case against the U.S. Attorney General being led by David Boies. The case is progressing as expected and we were especially pleased that the District Court acknowledged that there are persuasive reasons for a reexamination of the way the Controlled Substances Act regulates marijuana, and stated that the plaintiffs can pursue their claims and seek attention of the Supreme Court. David Boies believes the case could be heard by the Supreme Court next year. The bottom line is that cannabis companies just want to be treated like every other business in the U.S., and we think the Supreme Court justices will agree. Given the uncertainty surrounding federal reform, From a business perspective, we will continue to focus on controlling what we can control. Thus far in 2024, I'm proud of what we have accomplished. We have the right team, high-performing assets, strong cash flow, and the financial flexibility along with possible greenfield expansion and transformational deal opportunities. The cannabis industry is still in the very early stages of its development. This quarter marks our fifth anniversary of operating in the U.S., If you said to me then that we would be reporting a quarter with almost $78 million of revenue, 48% gross margins, and positive cash flow, I would have been pleased. If you then told me that the stock today would be down 75% from when it was pre-revenue in the US, I'm not sure that I would have believed you. I would have been very disappointed, and I am very disappointed. The question I often get is, so if the company is better positioned today than it was five years ago, Why is the stock price so much lower than it was? As famed investor Benjamin Graham famously stated, in the short run, the market is a voting machine, but in the long run, it's a weighing machine. Clearly, there was a lot of voting going on during the cannabis boom times of 2020 into 2021, and much less weighing. For the last three years, it's been the opposite. Jeff Bezos wrote in his letter to shareholders while reflecting on Amazon's 90% decrease in stock price in the year 2000, quote, we are a company that wants to be weighed, and over the long term, we will be. Over the long term, all companies are. In the meantime, we have our heads down working to build a heavier and heavier company. This has been our guiding principle at TerraSend and a concept that we remind ourselves of often. Now I'll turn the call over to Ziad to provide an update across our key markets. Ziad?

Thank you, Jason, and hello, everyone. As Jason mentioned, we have accomplished a tremendous amount thus far in 2024. Let me share how we performed state by state for the quarter in our key markets. Starting with New Jersey, we are thrilled that according to BDSA, Terrasand held the number one market share position in the state throughout the first half of 2024. This top spot was accomplished with breadth across all categories with our brands holding top three positions in flour, vapes, edibles, and concentrates. As the market has expanded and more retailers have come online over the past year, our revenue mix has shifted towards wholesale versus retail. This has been the trend over the last several quarters, and for the second quarter, while wholesale revenue was down sequentially and below our internal expectations, it still increased 100% year over year, and we maintained the number one market share position in Q2. At retail, we returned to sequential growth for the first time in four quarters. As background, our retail sales declined for three consecutive quarters in New Jersey, driven by the opening of over 103 stores within 20 miles of our three stores. These declines have now dissipated, This speaks to the quality of our products, the relationship that our customers have with our brands, and the Apothecarium's best-in-class retail experience. We have maintained strong gross profit margins, EBITDA margins, and cash flow in New Jersey, largely due to the performance of our brands, high cultivation yields, product quality, and our low-cost structure. We continue to explore opportunities to expand our retail footprint under state legislation that enables existing operators to take stakes in up to seven additional social equity qualifying dispensaries. This would further increase margins and profitability. Turning to Maryland, retail and wholesale revenue remains stable sequentially. During the quarter, we completed the expansion of additional rooms at our Hagerstown facility and have started to benefit from this increased flower capacity in recent weeks. As a result of this expansion, we expect continued wholesale growth in Maryland, as well as increased verticality in our four dispensaries, thereby enabling further gross margin improvements going forward. In early June, we relocated one of our stores to a new location in Nottingham, a larger and more conveniently located store that offers drive-through and extended floor space. As of today, with our four retail dispensary locations, while BDSA does not track retail market share in Maryland, we believe we have one of the highest performing retail footprints in the state. In Pennsylvania, it was business as usual during the second quarter of 2024. While retail revenue was stable, we have doubled wholesale revenue year over year, driven by strong performance of our value-oriented Legend brand and expansion into the edibles category with our Valhalla and Juana brands. We remain optimistic that Pennsylvania will approve adult use in 2025. Earlier this year, Pennsylvania Governor Josh Shapiro formally endorsed his support for an expedited adult-use cannabis program by January 1, 2025. As we have mentioned many times, we believe Pennsylvania would be a significant growth lever for the company. With a population of 12 million, the state is expected to grow from a $1.2 billion medical-only state to a $2 billion plus adult-use market by 2028, according to BDSA. As we approach 2025 and get more clarity on timing, we are preparing to hit the ground running when adult use does launch in the state. This includes planning to turn on additional capacity at our cultivation facility to give us the approximate five-month lead time needed to harvest. Once we bring the additional rooms online, we expect to have one of the largest cultivation outputs in the state. And lastly, in Michigan, our main focus has been on improving operational efficiency and driving gross margin to establish a solid foundation from which to expand. As a result, gross margins surpassed 40% for the third consecutive quarter. We currently have 20 locations in this state, including the recent opening of our second Detroit location. We expect to scale our operational footprint in the Midwest by entering new neighboring states to Michigan, such as Ohio. Doing so will offer us the opportunity to more effectively leverage our operating expenses by running Michigan regionally. In the meantime, we are focusing on optimizing our state-level operating expenses. Going forward, we continue to evaluate opportunities to go deeper in the state. Michigan remains an important market for us as the nation's second largest cannabis market with over $3 billion in annual sales. To summarize, I am as excited about our future as I have ever been. With our recent refinancing, we have improved our financial flexibility to execute on our growth plan, which includes acquisitions of best in-state operators at extremely attractive and accretive multiples. We have a lot to look forward to in our core markets. In Pennsylvania, we expect adult use in 2025. In New Jersey, we hold the number one position in one of the most attractive markets in the country. And in Maryland, we are bringing on new cultivation capacity and going deeper with penetration of our brands at our high performing retail locations and through wholesale across the state. Finally, we have many greenfield opportunities to expand into new states like Ohio. We also continue to actively explore other transformative transactions. I would now like to turn the call over to Keith to provide a financial update.