3/6/2025

speaker
John
Conference Operator

Good afternoon. My name is John and I will be your conference operator today. At this time, I would like to welcome everyone to Terrasend's fourth quarter and full year 2024 Financial Assaults Conference Call. Joining us for today's call is Jason Wilde, Executive Chairman, Ziad Ghanem, President and Chief Executive Officer, and Keith Stoffer, 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 assaults for the first quarter of 2025, 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 the past years, the expectations regarding regulatory reform and potential benefits thereof. Each forward-looking statement discussed in today's call is subject to risks and uncertainties that could cause actual assaults to differ materially from those projected in such statements. Actual assaults at the time of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported assaults should not be considered as an indication of future performance. Additional information regarding these factors appears under the Heading Risk Factors in 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 .sec.gov. Consider Plus and on the company's website at .terracent.com. The forward-looking statements in the call speak only as of today's date, and the company undertakes 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 our annual report on Form 10-K for the year ended December 31, 2024, which you can find on the company's Investor Relations website or on the SEC and CEDAR Plus websites. I would now like to introduce Mr. Jason Wilde. Please go ahead, Mr. Wilde.

speaker
Jason Wilde
Executive Chairman

Good evening, everyone, and thank you for joining us. Despite a challenging environment, our business performed ahead of our expectations to finish the year. We have a lot to be proud of for the fourth quarter of full year 2024. For the quarter, revenue totaled $74.4 million, up slightly sequentially, while our cross-profit margin expanded by 140 basis points to .2% from .8% in Q3, and we reduced our operating expenses in the quarter by $3.6 million. We generated adjusted EBITDA of $15.1 million, operating cash flow of $9.7 million, and free cash flow of $5 million. Importantly, the fourth quarter marked our 10th consecutive quarter of positive operating cash flow and sixth consecutive quarter of positive free cash flow. For the full year, we generated $306.7 million in revenue, $60.7 million in adjusted EBITDA from continuing operations, $38 million in positive operating cash flow, and $28.6 million in free cash flow. The key drivers of this performance were New Jersey and Maryland. In New Jersey, we retained our number one market share position throughout 2024, according to BDSA. In Maryland, our business has grown from negligible revenue in early 2023 to a fourth quarter 24 run rate of over $70 million, with further growth anticipated. While successfully growing revenue and market share in Maryland all four quarters in 2024, we expanded our gross profit margins from 25% to over 50% in the state. In late 2024, we implemented a company-wide ERP system, enhancing efficiency across departments and providing improved data visibility and control. This allowed us to further zero in on non-revenue impacting expense reductions. As a result, we reduced G&A expenses, excluding stock-based comp, by $1.3 million in the fourth quarter. And in 2025, we expect a further reduction of at least $10 million in SG&A. Our strategy includes a focus on driving the performance of our existing businesses, as I've just outlined, as well as aggressive pursuit of M&A. For the past several quarters, we have discussed greenfield expansion opportunities and possible transformational deals. We believe that Terracem's targeted approach has put us in a differentiated position to invest in the best geographies and assets at attractive valuations, while others have turned their focus inwards. During the fourth quarter of 2024, we announced the signing of a definitive agreement to enter Ohio, our sixth state. We expect to close on this transaction in the coming weeks pending regulatory approval. Our goal in Ohio is to assemble a leading retail footprint by acquiring high-performing stores, just as we did in Maryland. Building our Midwest presence will allow us to leverage our existing infrastructure and G&A in Michigan, which is expected to enable us to drive higher profitability in these states together versus operating them independently. While we continue to have many ongoing M&A conversations in the state, we will remain disciplined in our approach to deploying capital. Throughout 2024, we expressed interest in expanding our retail footprint in New Jersey under the state's social equity-focused legislation. This retail expansion would potentially further increase our leadership in the state, giving us additional scale and lead to improved margins and profitability as we vertically move forward. We expect to actively integrate each new store. We have a robust pipeline of potential opportunities, which we continue to work through in a disciplined manner, and we expect to share more news on this in the near future. Our balance sheet remains a priority. During the third quarter of 2024, we completed $140 million non-diluted debt financing with focused growth, enabled by $150 million of owned real estate and virtually no sale leasebacks. This financing contains no warrants or prepayment penalties and gives us the flexibility to pursue attractive M&A transactions that are consistent with our geographic expansion plan. The vast majority of our debt maturities now extend to late 2028. We also continue to work towards ways to further reduce our interest expense. Regarding regulatory reform, we are monitoring progress at both the federal and state levels. In December, oral arguments were held at the U.S. Court of Appeals for the First Circuit in the David Boyce lawsuit against U.S. Attorney General Garland, which seeks equal treatment for legal, state-regulated cannabis businesses. We look forward to sharing further updates as this case progresses. In Pennsylvania, we are excited about the possible passage of an adult use bill. Recent polling from Change Research shows seven out of ten Pennsylvania voters, including Republicans, want cannabis adult use to be legalized. Passage of such a program will enable us to fully utilize our large-scale 150,000 square foot cultivation and manufacturing facility. Governor Shapiro recently presented an annual budget proposal to the state legislature, which included the legalization of adult use. Ziad and I were there for this event and had the opportunity to speak with many of the state legislators. We were both very encouraged by these discussions. In conclusion, the cannabis industry is still in the early stages of development. 2024 marked just our fifth anniversary of operating in the U.S. If you said to me then that we would be reporting a quarter with $74 million of revenue, over 50% gross margins, and positive cash flow, I would have been pleased. If you then told me that the stock today would be down 90% from where it was pre-revenue in the U.S., I'm not sure that I would have believed you. I would have been very disappointed, and I am very disappointed. To that point, in August we announced our first ever share repurchase program for up to $10 million, demonstrating our confidence in TeraSense's future and our commitment to enhancing shareholder value. Considering the improved performance of our existing business, strength and balance sheet, $150 million of owned real estate with no material sale lease backs, the potential for Pennsylvania to convert to adult use, and greenfield expansion opportunities, we believe that our equity is significantly more undervalued now than it was last August. We intend to act on that belief in the coming days. With that, I'll now turn the call over to Ziad to provide an update across our key markets. Ziad?

speaker
Ziad Ghanem
President and Chief Executive Officer

Thank you, Jason, and hello everyone. Let me share how we perform state by state for the quarter in our key markets. Starting with New Jersey, according to BDSA, TeraSense maintained the number one market share position in the state for every quarter in 2024. Throughout the year, retail revenue remained healthy, with sales in the second half slightly higher than the first, despite new retail door openings in close proximity to our stores. According to LitAlerts, an independent market measurement source, all three of our apothecary retail locations in New Jersey rank in the top 10 out of the approximate 200 dispensaries now open across the state, in terms of total units sold during the fourth quarter. Wholesale revenue also remained strong during the quarter, with positive growth, maintaining our number one market share position, and selling to an increasing number of dispensaries across the state. The quality and consumer appeal of our brands is driving this number one market share performance. Our brands ranked among the top three positions in flower, vapes, edibles, and concentrates categories. Our diverse portfolio in these categories continue to resonate with the New Jersey consumers, delivering strong value and performance across multiple price tiers. Our brands consistently rank among the top 10 across the state in distribution and velocity. We also plan to increase our store count in New Jersey through acquiring up to seven additional diversely owned qualified dispensaries. This retail expansion would further increase our leadership in the state, give us additional scale, and lead to improved margins and profitability as we vertically integrate each new store. As Jason mentioned, our pipeline is strong and we expect to be able to share further news on this front in the near future. Continued growth in wholesale and an increased number of owned dispensaries in New Jersey represent significant growth opportunities. As a result, on our last earnings call, we discussed expansion of our cultivation and manufacturing capabilities at our Bunton facility. The expansion is well underway and proceeding according to plan. This expansion will provide us with additional flower capacity and the ability to offer a broader product portfolio, as well as enable us to supply additional storage. In Maryland, our success story continues. We entered the Maryland market in 2021 through the acquisition of a small cultivation facility with negligible revenue and then acquired four dispensaries during the first half of 2023. At the end of 2024, we are proud to be on a $70 million revenue run rate and have delivered sequential revenue growth and gross margin expansion for all four quarters of 2024. We have increased our market share position from number 13 in the fourth quarter of 2023 to number six in the fourth quarter of 2024, according to BDSA. We are now just 1.9 market share points away from a number two position in the state and are demonstrating the momentum to achieve this goal in 2025. During the fourth quarter of 2024, retail revenue increased 7% sequentially, while wholesale revenue increased 18% for the same period. Our verticality and operational efficiencies have enabled us to double our gross margins from 25% in 2023 to over 50% in the fourth quarter of 2024. We expect this growth to continue. Therefore, we are expanding cultivation capacity by an additional 50% at our Maryland facility by investing in four additional grow rooms. We remain on track to operationalize these additional rooms in the first quarter with the first harvest expected late in the second quarter. Turning now to Pennsylvania, Q4 was another steady quarter for retail and wholesale. Retail revenue was stable quarter over quarter, while productivity per store remained healthy. Wholesale revenue was also stable quarter over quarter, driven by the strong performance of our value-oriented Legend brand and our expansion into the Edibles category earlier in 2024 with our Valhalla brand. Pennsylvania will be a significant growth lever for us upon adult use implementation. We support Governor Shapiro's inclusion of adult use cannabis during his annual budget proposal and address. We already have a fully built out large-scale cultivation and manufacturing facility with no need for additional investment. With the prospect of adult use launch on the horizon, we have plans in place to bring on currently unused capacity and will have it ready as needed in response to the increased demand resulting from adult use implementation. And lastly in Michigan, our priorities remain consistent. To improve operational efficiency and rise healthy margins in order to establish a solid foundation from which to expand. As we have said before, we expect to scale our operational footprint in the Midwest by entering new neighboring states to Michigan, such as Ohio. This allows us the opportunity to more effectively leverage our operating expenses. In addition, we remain focused on optimizing our state-level operating expenses in Michigan. On the topic of improving efficiencies, in the fourth quarter we completed a multi-year company-wide implementation of an ERP system. Our team demonstrated considerable dedication and diligence throughout this implementation, and I want to thank them all for their efforts. We now have the most efficient IT and financial foundation in our company's history that will support our continued growth, both organically and through M&A. Implementation of this ERP system is already providing enhanced efficiency across departments, as well as improved data visibility and control, leading to more effective decision-making. We believe this is a differentiator and a competitive advantage for our company. In summary, I'm very proud of what we accomplished in 2024. Our business remains solid. With a strong leadership team, strong business fundamentals, a disciplined M&A strategy, no material debt maturing for the next several years, consistent positive operating and free cash flow quarter after quarter, and -in-class sponsorship, I'm confident in our outlook for 2025 and for years to come. I would now like to turn the call over to Keith to provide a financial update.

speaker
Keith Stoffer
Chief Financial Officer

Thanks, Ziad. Good evening, everyone. The results that I'll be going over today have already been filed on both CDAR Plus and with the SEC, and all results that I will reference today are stated in U.S. dollars. Net revenue for the full year 2024 totaled $306.7 million compared to $317.3 million for 2023. This decrease was mainly due to declines in retail sales in Michigan and New Jersey, partially offset by wholesale revenue growth in New Jersey and growth in Maryland in both retail and wholesale, driven by a full year of adult-use sales and market share gains in that state. Net revenue for the fourth quarter of 2024 totaled $74.4 million, an increase of .3% compared to $74.2 million in the third quarter of 2024. Retail revenue was down .5% sequentially, while wholesale revenue was up .1% sequentially. The total .3% growth was driven by our number one market share position in New Jersey, combined with sequential revenue growth in Maryland for the fourth consecutive quarter, partially offset by retail decline in Michigan. Gross margin for the full year 2024 was 48.9%, compared to .3% for the full year 2023. The decline in gross margin was driven by price compression in New Jersey and Pennsylvania, partially offset by margin improvement in Maryland, driven by our expansion and continued productivity gains and cost reductions in that market. Importantly, gross profit margin for the company expanded during all four quarters of 2024 and exited the year in Q4 at 50.2%, compared to .0% in the first quarter of 2024. Quarter over quarter, gross margin expanded 140 basis points from .8% to the .2% in Q4. This expansion was driven by improvements in Maryland and Pennsylvania, while New Jersey remained relatively flat quarter over quarter. G&A expenses for the full year 2024 were $111.6 million, compared to $115.2 million in 2023, representing a 3% decline in G&A expenses year over year. This decline was related to our ongoing initiatives to optimize G&A expenses. G&A as a percent of revenue was unchanged versus the prior year at 36%. G&A expenses for the fourth quarter were $28 million, compared to $31.6 million in the third quarter. The $3.6 million sequential decline in G&A expenses was driven by a $2.3 million reduction in share-based compensation expense and $1.3 million of operating expense reductions. As Zia and Jason both mentioned, in late 2024 we reviewed all the expenses of our business that would not have any impact on revenue. Following this review, our team took a number of actions, which were reflected in our lower G&A during the fourth quarter and which we expect will reduce operating expenses by at least $10 million in 2025. Net loss from continuing operations for the full year 2024 was $72.7 million, compared to a net loss of $82.3 million in 2023. 2024 included $47.8 million of non-cash impairment charges, and 2023 included $58.1 million of non-cash impairment charges. These charges were mainly related to goodwill intangibles and fixed assets for our Michigan business. Net loss from continuing operations for the fourth quarter of 2024 was $30.2 million, compared to a net loss of $21.4 million in the third quarter of 2024. The sequential increase in net loss was driven by the non-cash impairment charges in our Michigan business. Full year 2024 adjusted EBITDA from continuing operations was $60.7 million, compared to $68.8 million in 2023. The -over-year change in adjusted EBITDA from continuing operations was driven by lower revenue and gross margin, partially offset by lower G&A expenses. Adjusted EBITDA margin from continuing operations for the full year was 19.8 percent, compared to 21.7 percent in 2023. Adjusted EBITDA for the fourth quarter of 2024 was $15.1 million, or 20.3 percent of revenue, compared to 13.7 million, or 18.5 percent of revenue in the third quarter. The sequential increase was primarily driven by gross margin expansion and lower G&A expenses. Turning to the balance sheet and cash flow, cash and cash equivalents, including $600,000 of restricted cash, were $27 million as of December 31, 2024, compared to $27.2 million as of September 30, 2024. Cash flow from continuing operations for the full year 2024 was $38.0 million, compared to $31.1 million in 2023. Cash flow from operations in the fourth quarter of 2024 was $9.7 million, compared to $1.8 million in the third quarter of 2024. This represented our tenth consecutive quarter of positive cash flow from continuing operations. CAPEX spending was $4.7 million in the fourth quarter, mainly related to expansions at our Maryland and New Jersey facilities. Free cash flow was $5 million in the fourth quarter, compared to $1.5 million in the third quarter, representing our sixth consecutive quarter of positive free cash flow. During the quarter, we distributed $2.9 million to our New Jersey minority partners and paid down $1.4 million of debt. In August of 2024, we closed on a non-deletive senior-secured term loan for gross proceeds of $140 million, bearing a coupon rate of 12.75%, with a four-year duration maturing in August of 2028 and without any warrants or prepayment penalties. The net proceeds of this loan were used to pay off existing higher interest debt that was set to mature in late 2024. With this financing, we have the financial resources and flexibility to execute our growth plans, with the vast majority of our debt maturities extended to late 2028. It is also important to note that we own all of our cultivation facilities in our three Northeast states and Michigan, having never done a sale-leaseback transaction. Our total amount of owned real estate is approximately $150 million. In August, we announced our first-ever share repurchase program for up to $10 million, demonstrating our confidence in TerraSense's future and our commitment to enhancing shareholder value. Looking ahead into the first quarter of 2025, we expect revenue to be down low to mid-single digits due to seasonality, gross margin to remain around 50%, and further DNA expense reduction -over-quarter as we continue to realize the savings from the actions taken, which we expect to lead to $10 million in savings for the full year 2025. We expect capex spending for 2025 to be approximately $10 million, focused on revenue growth and margin expansion opportunities in our Northeast states. In summary, we believe our fourth quarter and year-end results represent another period of solid performance, ending the year in Q4 with improved margins, profitability, and cash flow, and with a solid outlook for 2025. We look forward to sharing our progress on the business during our next quarterly call. This concludes our prepared remarks. I'd now like to turn it over to the operator for questions.

speaker
John
Conference Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from the line of Frederico Gomez from ETB Capital Markets. Your line is now open.

speaker
Frederico Gomez
ETB Capital Markets

Hi, good evening. Thanks for taking my questions. My first question is on M&A. Given the declining valuations we're seeing in the public space, I'm curious if you're seeing that as well with some of the private companies. Specifically in Ohio, you have the transaction that's going to close soon, but how aggressive should we expect you to be in terms of adding storage in Ohio in 2025? Thanks.

speaker
Jason Wilde
Executive Chairman

Hi Frederico, it's Jason. Yeah, so we have definitely seen price expectations continue to come down for M&A targets. Definitely, especially in Ohio versus about a year ago when we started looking pretty intensely partly because the market has not grown to what people thought it was going to be in Ohio, but to a large extent also because valuations have come down across the board. This is very different than several years ago when the public companies all started going down, but the private companies didn't seem to accept the fact that their valuations should be coming down in a commensurate manner. At this point, we're seeing really strong prospects at very attractive multiples in New Jersey and in Ohio where we've been focusing a lot of our time.

speaker
Frederico Gomez
ETB Capital Markets

Thanks for that. And then second question on Maryland, very impressive performance there. I think Maryland, we're going to have new stores opening up there, if I'm correct. So how might that impact your operations and your condition in the state?

speaker
Ziad Ghanem
President and Chief Executive Officer

Hey, Friar Ziaz here. We are very excited about Maryland. Maryland has been performing extremely well for us. The improvement in our positioning from a market share, our goal to get to the top two in market share is not just a guess, it's just going by the progress we are seeing in our wholesale business, the progress that we are seeing in our gross margin, but then also the performance of our four retail stores. We still believe that today we have the number one retail position even though it's not reported officially among the four stores. We are adding four additional flower room that will be done at the end of this quarter, and then we expect Maryland from a wholesale to retail perspective to behave and to be very similar to New Jersey. The new accounts and the new stores that are coming in are either social equity accounts or non-vertical operators. So if those stores can't end within your trade area, then of course they impact your retail stores. We are not talking about retail stores, but our stores are very well geographically diverse. Some of them are urban, some of them are rural. So the retail could be impacted in those, but wholesale is where we are preparing to shine and preparing to replicate what we did in New Jersey. And that's where the capacity and the increase of the four rooms, we started with four flower rooms, we added four that are online now that help with our verticality and help grow our wholesale business, and the additional four rooms will help us grow that wholesale business.

speaker
Frederico Gomez
ETB Capital Markets

Thank you very much. Congrats on the quarter. I'll be back in a few.

speaker
John
Conference Operator

Thanks, Fred. Thanks. Your next question comes from the line of Eric Delortier from Craig Hallam Capital Group. Your line is now open.

speaker
Eric Delortier
Craig Hallam Capital Group

Great. Thank you for taking my questions and congrats on the nice results here. Thank you. So a few questions around New Jersey. So you have the expansion going on in Boonton. If you do acquire seven additional stores over the coming quarters here, how should we think about the impact of wholesale with the expansion at Boonton? Obviously excluding those potential acquisitions, we would expect some growth in wholesale. If you do get those stores, it's obviously a pretty significant number. Is there room for wholesale to continue growing or should we expect increased verticality, obviously for the profitability that comes with that and overall rerouting of wholesale sales to retail, or is there room for wholesale to remain steady or continue growing given the expansion?

speaker
Keith Stoffer
Chief Financial Officer

Hi, Eric. It's Keith. Great question. And there are really a lot of variables in there. So number one, the pace at which we're able to deliver these potential seven deals, that would most likely happen over time and give us the ability to kind of see the runway ahead and kind of push and pull the levers against our capacity. But we are preparing now. So this expansion is preparing and paving the way for us to continue to be able to grow our wholesale business and take into account bringing on these additional dispensaries and getting to certain verticality levels. But that's also a big variable. So I'd say we're right now in our current three stores at really healthy verticality levels, which is kind of where we want to be. And we can always dial that up and dial that down. And then with the new stores, same thing, dialed up, dialed down, and balance that whole equation to really make sure we're optimizing between our existing stores, the new ones we acquire, and continuing to grow our wholesale business. So again, lots of variables and levers to pull. So it's a little bit of a non-answer to your question, but that's kind of how we think about it.

speaker
Eric Delortier
Craig Hallam Capital Group

That's helpful. And then just on the new product types that you're looking to sell in New Jersey, just remind us what those are and what impact you think that could have.

speaker
Ziad Ghanem
President and Chief Executive Officer

Yeah, I'm here. So one of the things that has helped us be successful in New Jersey and protect our number one market share is the innovation that we've done in multiple fronts. So starting with listening to our consumers and watching their behaviors and watching, getting their feedback on the flower strains. We have managed, and we will continue in 2025, to introduce at least two new strains in every harvest cycle. And those new strains have performed well for us and have increased the loyalty of our customers. So first bucket is in the flowers. Second is in creating what we call a perfect menu. The team has done an outstanding job jumping ahead of the market and expecting the change in consumer behavior based on historical data from states that are older than New Jersey, and that is states in the West, Colorado, etc., etc. On edibles, we are expanding our kitchen to introduce new form factors like chocolate and different dosage of edibles. So it's a combination of new strains that have the same quality as our high-performing strains have today, plus introducing new form factors. Just to give you an idea, in New Jersey in 2024 we have launched a total of more than 60 new skews in the state that have been received very well by the consumers and have helped us maintain that market share. So it's innovation in what we have and adding new form factors.

speaker
Keith Stoffer
Chief Financial Officer

And if I could just add, just really, we're proud of the results in New Jersey, the number one market share position that we hold. And the depth and breadth of that market share position, meaning, I think we said a little bit, alluded to it in our prepared remarks around how we hold top three positions in all product categories. And that speaks to the breadth of the new products that we're launching and everything. So we're really happy about how that's going.

speaker
Eric Delortier
Craig Hallam Capital Group

Yeah, it's very impressive results. And my last question kind of dovetails from that. So just kind of talk a little bit more about what makes New Jersey so successful for you guys. I mean, I know you have some key partnerships and exclusive genetics and things like that that certainly help. But is there anything unique about your operations that maybe you have room to implement in markets like Pennsylvania or Maryland? Like, should we think of New Jersey as kind of the sort of, I guess, shining example of what Tarasen operations can be in different states and to expect sort of continued improvement in those other states until they reach a similar status as in New Jersey? Or is there something sort of unique about that state that maybe isn't fully implementable in other states that you have? Thank you.

speaker
Ziad Ghanem
President and Chief Executive Officer

Yeah, look, I'll answer this question today with a lot of confidence because of Maryland. But New Jersey is a place that we entered three years ago, five, six years ago, and we won a license, a new license, and we built the business from the floor, from the ground up. And we have started and introduced our brand to patients. And we learned with the patients in New Jersey. We launched with the patients in New Jersey. We tested with the patients in New Jersey. And we established a relationship between the consumer and our brand. And that's what you're seeing, five, six years of work that are coming to fruition in here and then helping us get to that position. But then, so getting to the lead was one part. Then protecting the lead was the second part. The second part, everything I shared earlier as far as innovation, the new product, et cetera, et cetera, now give us the playbook on how to get to the lead first, how to protect the lead. But then Maryland, while it's different than New Jersey, and it's not, we didn't start, we had virtually no revenue in Maryland. But taking that playbook that we learned in New Jersey and implementing it in a late phase in Maryland is what allowed us to win six or seven positions in market share. And give us the confidence to mention on the call that we have our eye set to be top two. And then hopefully soon we'll share more aggressive than top two. But that's where our confidence comes from, getting to the lead, protecting the lead, and taking this playbook to the new stage. All this is possible by an outstanding team in the Northeast that has launched New Jersey, transitioned it through adult use, did the same in Maryland, both on wholesale and retail, and are sitting ready and prepared to replicate the same thing in Pennsylvania.

speaker
Eric Delortier
Craig Hallam Capital Group

Very helpful. Congrats again on the strong results, guys. Thank you.

speaker
John
Conference Operator

As a reminder, if you have a question, please press star one on your telephone keypad. Your next question comes from the line of Andrew Semple from Benton Financial. Your line is now open.

speaker
Andrew Semple
Benton Financial

Good evening. Thanks for taking my questions and congrats on a solid end to the year for TerrSUN. I'm going to come back to the topic of the M&A and specifically the Pennsylvania market. Understanding that you mentioned your prepared remarks that you wouldn't need to allocate capital to that state if adult use sales were to go ahead. Though there is the opportunity for TerrSUN to be bolstered, it's retail presence in the state. So maybe just an update on what you're seeing out there in terms of potential opportunities to pick up some dispensaries in Pennsylvania or whether you'd look to do that once you've got more clarity on the legislative timeline.

speaker
Jason Wilde
Executive Chairman

Thanks for the question, Andrew. So you're referring, I just want to make sure I understand your question, you're referring to whether we're looking at M&A opportunities in terms of extra dispensaries in Pennsylvania? That's correct. Yes. We have looked historically over the last several years. The problem is partly that since there's no license caps, there's just more potential buyers in New Jersey than there are in other places like Maryland and Ohio and things like that. So we're always looking, if we did one of our more transformational deals, some of those have a presence in Pennsylvania which would give us more retail in the state. But I would say just in terms of the approach we're taking in Jersey and in Ohio where we're looking for single dispensaries, the price expectations in PA are still a little bit too high because there's more competitive friction from a buyer perspective.

speaker
Ziad Ghanem
President and Chief Executive Officer

Yeah, Andrew, the only thing Zia had here, the only thing I want to add is we have shown in Maryland that in a quick period of time we can acquire a creative dispensary and add to our stores. The last part of your question, are you watching and waiting and learning more about the timeline? I think there's this factor as well. We continue to watch the environment. We continue to learn when is the actual implementation first sale of adult use and as time progresses we'll make the right decision.

speaker
Jason Wilde
Executive Chairman

Yeah, I think that's a good point that Zia made because when we look at PA, we feel like we're as close as ever from an adult use legislation perspective. But when we look at dispensaries in Pennsylvania, we're still valuing them like they're medical dispensaries. Once we have some type of date certain launch for adult use, then I think a lot of the stuff that we've looked at will be, in our view, much more realistically valued. Even if you look at Ohio, we waited not just until it was date certain but until the market launch, which worked out, we think, really well for us because expectations were higher than what ended up transpiring in the state. But as we get closer to adult use, I think the multiples are certainly when adult use starts in PA, the multiples will work better because we want to buy them at good multiples of medical and then have that extra bonus of rec starting. That's where the expectations have not been realistic enough at this point.

speaker
Keith Stoffer
Chief Financial Officer

And Andrew, I don't know if this was part of your question or not, but I just thought I'd clarify around our comments, around our facility. It's completely built out. No additional capex investment is needed. It's about at half utilization, so plenty of capacity available to turn on additional rooms that are there and ready once adult use happens.

speaker
Jason Wilde
Executive Chairman

And as we, I think we've mentioned many, many times, our cultivation capacity in Pennsylvania is equal to all of our other cultivation capacity in our other states combined. So there is, you know, we look at PA as an even bigger wholesale opportunity upon rec implementation than our other states.

speaker
Ziad Ghanem
President and Chief Executive Officer

The three of us are answering questions about PA. That's how excited we are about PA. We're more excited about PA than, or as excited as New Jersey and Maryland.

speaker
Andrew Semple
Benton Financial

Thank you, everyone. That's helpful. And then maybe turning to New Jersey and Ohio, where there's perhaps some more clear near term plans. You know, I think maybe the expectation was around the middle of last year that you can move perhaps a little bit quicker on some of these opportunities. Just wondering what are kind of the hurdles to moving a bit faster in those states. You know, it's probably been in your favor as valuations come down, but maybe just helping us understand what we need to see to see the pace pick up there on some of those opportunities.

speaker
Ziad Ghanem
President and Chief Executive Officer

Yeah, I'll divide those in both New Jersey and Ohio, Andrew. Look, in New Jersey, our conversations have not slowed down. The interest from independent operators did not slow down. The valuation are better, like Jason said. You know, I'll share. We were hoping today to share something similar to what we shared in Ohio, but with M&A, as you know, sometimes what you expect to happen in a week takes an extra few weeks or a month or two, but the interest and the conversations have not changed, have not slowed, and we are still focusing on eyeing seven additional dispensaries in New Jersey. If I switch to Ohio, look, while we are disappointed at the speed of Ohio M&A, we're extremely proud of the discipline that we showed in Ohio. In Ohio, we wanted to implement an earn-out factor in our conversations, and we were resistant, or we were faced with resistance from the independent operators because while they acted and they were super confident on the numbers, they were not willing to take the earn-out. I can tell you some of those conversations are circling back, and they are at a much, much, much better and lower valuation for us. So I'm glad we waited. We're disappointed at the speed. We're still as determined, and we will wait for the right opportunity to get the right press. Jason, anything you want to add?

speaker
Jason Wilde
Executive Chairman

No, I think that's right. I mean, we're, you know, as we talked about a year ago, we were very excited and wanted to be there in Ohio, you know, with some nice scale towards the beginning, you know, relatively early in the program, but I'm proud of this team that, you know, that we've all, we all thought through it critically and realized that the situation and the value of those assets in Ohio, you know, was not worth what we thought it was going to be worth just a few months earlier before the program started. So, you know, I think that we're going to still have and we're seeing opportunities in Ohio, you know, practically on a daily basis, but as you had mentioned, we're going to get them for a lower multiple at a lower price, lower overall price as well, because most of these businesses are not doing what they thought they were going to do in their projections, you know, just a year ago.

speaker
Andrew Semple
Benton Financial

Good. Glad it's moved in your favor and things continue to progress. Thanks for taking my questions. I'll get back to you.

speaker
John
Conference Operator

Thank you. Once again, a set reminder, if you have a question, please press star one on your telephone keypad.

speaker
Jason Wilde
Executive Chairman

Thank you, everybody, for joining the call today. Oh, sorry. I wasn't listening. Was there no waiting for other questions in the queue?

speaker
John
Conference Operator

Jason, please continue.

speaker
Jason Wilde
Executive Chairman

Sure. Thank you all for joining us today. We appreciate it. We appreciate you all logging in. I wanted to maybe take a minute to sort of share how I view, you know, the company's valuation and what we see as a team, what we see going forward. The fact is, at this point, our stock has lost so much in value that it is trading for about the value of our own real estate. The fact is we have $27 million in cash on top of that. And the way I look at it is, at this point, you're either getting the real estate for free or our business for free. We had a relatively strong cash flow in this quarter and over the course of the year. And I believe that the debt on the company is fully supported by the cash flow of the business. That's just sort of the way we've been looking at it. That's why we made the comment in the prepared remarks that we plan on aggressively implementing our buyback when the blackout period ends in another 48 hours or so. And with that, thank you all for joining us.

speaker
John
Conference Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Disclaimer

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