TerrAscend Corp.

Good afternoon. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to TerraCent's fourth quarter and full year 2024 financial results conference call. Joining us for today's call is Jason Wild, Executive Chairman, 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 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 results to differ materially from those projected in such statements. Actual results 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 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 www.sec.gov. On Cedar Plus and on the company's website at www.terrasend.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. 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 FEC and CDAR Plus websites. I would now like to introduce Mr. Jason Wild. Please go ahead, Mr. Wild.

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 gross profit margin expanded by 140 basis points to 50.2% from 48.8% 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 Terrasem'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 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 Boies 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 7 out of 10 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 his 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 Terrasense's future and our commitment to enhancing shareholder value. Considering the improved performance of our existing business, strengthened balance sheet, $150 million of owned real estate with no material sale leasebacks, 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?

Thank you, Jason, and hello, everyone. Let me share how we performed state by state for the quarter in our key markets. Starting with New Jersey, according to BDSA, TerraSand 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 and 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 flour, 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 Boonton 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 stores. 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 23 to number 6 in the fourth quarter of 24, according to BDSA. We are now just 1.9 market share points away from a number 2 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 shoes 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 drive 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 remained 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 best-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.