Q3 2022 Green Thumb Industries Inc Earnings Call
[music].
Good afternoon, and welcome to Green <unk> third quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the conclusion of formal remark.
During the question and answer session, we would ask for a limit of one question per person.
As a reminder, alive audio webcast of the call is available on the Investor Relations section of Green Thumbs website and will be archived for replay.
I would like to remind everyone that today's call is being recorded.
I will now turn the call over to Shannon Weaver Director of Communications. Please go ahead.
Thank you Betsy and good afternoon, and welcome to Green third quarter 2022 earnings call.
Here today, with founder and CEO , Ben <unk>, and Chief Financial Officer, Anthony Giordano.
Today's discussion and responses to questions may include forward looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements.
These risks and uncertainties are detailed in our earnings press release issued today, along with our reports filed with the United States Securities and Exchange Commission and Canadian Securities regulators, including the 2021 and annual reports filed on Form 10-K.
This report along with today's earnings release can be found under the investors section of our website.
Green thumb assumes no obligation to update or revise any forward looking statements to reflect events or circumstances that may arise. After the date of this call.
The discussion Green Dot will refer to non-GAAP financial measures, including EBITDA and adjusted operating EBITA.
A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is included in our earnings press release, and SEC and SEDAR filings.
Note that all financial information is provided in U S dollars unless otherwise indicated.
Thanks, everyone and now here's Pat.
Thank you Shannon and good afternoon, everyone and thank you for joining our third quarter conference call.
Green thumb reported record revenue and adjusted operating EBITDA results, even in the face of rising inflation and greater economic uncertainty.
Revenue increased 12% year over year, and 3% quarter over quarter to $261 million.
We had positive GAAP net income for the ninth consecutive quarter.
Adjusted operating EBITDA grew 7% sequentially to $84 million.
Or 32% of revenue for the quarter.
$230 million year to date.
Finally, our cash flow from operations was $48 million for the quarter and $88 million year to date.
We feel good about these results and I think we are positioned to finish the year with solid performance.
That said no one has a crystal ball on what inflation will come under control and how much it will impact consumer spending, particularly in this new industry.
Despite these challenges consumer demand for legal cannabis remains healthy.
While there is price compression in certain markets unit growth increased 22% year over year. According to PDSA.
We believe this is a clear indicator of the cannabis is an essential purchase for American consumers.
As I've said before candidates as a branded consumer packaged goods business and its growth continues to over index. Other CPG categories like domestic beer, which declined 1% year over year.
Green thumb continues to build strong brand loyalty with products like rhythm flower and dog walkers pre rules.
Finally, we are operating in highly attractive states.
We are seeing strong momentum in new adult use markets like New Jersey, and look forward to similar results in Rhode Island, which is expected to launch adult use on December one.
And Connecticut, which should launch in the next six months.
In addition, green thumb is well positioned in both Virginia, and New York, but when those states come online with adult use.
Zooming out the U S cannabis industry generated sales of over $6 6 billion in the third quarter, which equates to a run rate of over $26 billion.
That is 3% growth year over year, and 2% growth quarter over quarter for the industry.
In contrast, greenbaum grew 13% year over year, and 3% quarter over quarter.
Obviously, we are proud of that achievement, but we are focused on the future.
We're laying the foundation for industry, leading growth as demonstrated by our disciplined capital spending Cree.
Creative partnerships and our commitment to good old heartburn.
The recent buys an executive order in potential passage of the Safe Act as Senator Schumer alluded to earlier this week, our positive news for the industry.
We continue to operate with a healthy degree of skepticism that keeps us focused on protecting downside risk, which just means staying focused on cash flow and our balance sheet.
Even with all the noise in the marketplace greenhouse cash actually grew in the third quarter.
We paid all of our taxes and we extended our debt agreement to April 32025.
We believe that worrying about the downside is equally important is planning for the upside.
And can actually create more value for stakeholders overtime.
Market demand for candidates will continue to give us a runway of opportunity and our recently announced innovative partnership with circle K Global convenience store retailer is a prime example of that.
As many of you know, Florida is an interesting and unique market.
For starters. It is the third largest cannabis market in the U S with annualized sales of over $2 billion in what is still a medical only market.
The other unique attribute about Florida is that there is no cap on the number of dispensaries that license holders may open.
As we announced on October 19th we plan to expand our medical retail footprint in Florida through leasing arrangements with circle K.
The first phase of our test and learn rollout subject to regulatory approvals. We plan to open approximately 10 rise express branded medical dispensaries.
Through this exclusive agreement Green thumb can lease space adjacent to circle K stores in Florida, where the retailer currently operates approximately 600 locations.
The rise express stores will offer patients with a valid medical marijuana identification card expanded access to a selection of branded medical cannabis products, including rhythm flower dog walkers pre rolls Incredibles, Gummies and Ann Shine base.
And while we've had a presence in Florida since 2018, and currently operates seven medical dispensaries, We believe opening rise express can change the game.
Convenience is a strong channel and retail and people, including medical cannabis patients want more convenient access to canvas. The new rise Express model is a huge step forward in normalizing candidates through routine access.
Now patients will be able to pick up a pack of dog walkers or incredibles in the same trip if they fill up their tank of gas.
A lot of forethought and preparation went into making this agreement possible. For example, we are near completion of our new cultivation facility in Ocala, Florida, which will supply products for the rise express stores. So.
So to comply with Florida as integrated supply and production regulations. It was critical to make this investment well in advance of expanding our retail footprint. So we have the product ready.
Capital allocation decisions like this require a long range planning to position our company for future returns and value creation.
Before I turn the call over to Anthony to review the financials I want to address the recent departure of three Greenstock Board members.
Unfortunately, it was a situation where opinions diverged and while we work behind the scenes for quite a while to find the resolution. It became clear we could not find the common ground and those individuals elected to leave the company.
I am grateful for all the guidance and insight we received from our former directors.
Fortunately, we have two new Great Board members, Richard Drechsler, a seasoned financial executive with strong board and audit experience.
And Jeff Goldman Who's operating scale multiple branded CPG businesses.
We look forward to benefiting from their considerable experience and fresh perspectives.
We are excited to move forward with the team and board understand the inherent challenges operating a federally illegal business and are committed to our goal of maximizing shareholder value.
Finally, I want to emphasize that strong corporate governance remains a top priority for greenfield.
We believe it is especially relevant to the important work we are doing day in and day out to assure our stakeholders that their company is in good hands and has a leadership team aligned with their interests.
We continue to actively recruit new board members in preparation for a potential U S listing.
Now I'll turn the call over to Anthony to review the financials Anthony.
Thanks, Ben and good afternoon, everyone.
As you just heard the company posted solid financial results for the third quarter generating $261 million of top line net revenue and $84 million and adjusted operating EBITDA.
And stock based comp normalized SG&A approximated $53 million, a $4 million decrease from Q2.
This decrease was largely driven by various reductions made earlier in the year as well as a continued focus on closely monitoring corporate spend.
Given the current macroeconomic uncertainty the company intends to keep a close eye on its SG&A to balance short term business profitability targets with its long term strategic objectives.
And to confirm our 30% EBITDA margin target remains.
Net of SG&A, along with $5 6 million and other expense the company generated $10 million and net income or <unk> <unk> per diluted share our ninth consecutive quarter of positive earnings per share from the business.
Turning to our balance sheet. The company ended the quarter with $147 million of cash a slight increase over Q2.
Our healthy cash balance as a result of a tremendous amount of hard work by our team.
Strong operating performance combined with the daily focus on managing our inventory levels has created the one plus one equals three type of math our shareholders well.
The company generated $48 million in operating cash flow in the third quarter and $88 million year to date.
All the while paying uncle, Sam $31 million in cash taxes in Q3 and $95 million year to date.
During Q3, the company invested 49 million and gross Capex as we continued to make substantial capital investments in New York, Florida, New Jersey, Virginia and Minnesota.
Year to date, we have invested $178 million in gross Capex and remain bullish that our investments will drive meaningful cash on cash returns for our shareholders.
As we look ahead to 2023, we anticipate continuing to allocate capital to certain markets, while conservatively managing our balance sheet.
In closing as we head into the season of thanks.
Can't say enough about our entire green thumb family and the magic they make happen everyday.
As a team we continue to navigate a highly complex industry with ever changing rules aggressive competition in an unpredictable economic environment.
However through hard work and dedication we remain focused on our true North star the consumer.
We continue to think that above all else our success will be defined by our ability to embrace our craft and create products brands and retail experiences that resonate with the consumer.
We hope everyone has a wonderful holiday season with their loved ones and look forward to speaking with you all in the new year.
You bet.
Thank you Anthony.
In closing I am very optimistic about the future of the U S cannabis market and I'm proud of Green <unk> leadership position in the industry.
Sure there'll always be some bumps in the road, but we'll be smarter and more resilient as a result.
Our end game has always been to play with strength and to us that means staying true to our strategy and executing it to the best of our ability.
It's very important to us that our investors and stakeholders know, who we are and what we stand for.
First we are always resisted the exuberance of growth for growth's sake, but the looming recession balance sheets are coming back into focus and we are proud of our prudent approach to maintaining a strong one which can fortify us in a downturn as well as give us the optionality to act an opportunity.
Second we believe in putting capital into markets that will generate strong returns over time.
As I mentioned earlier circle K partnership could not have happened without forward looking capital investment and that's what we will continue to do.
Third diversification helps that's why we have built a diversified portfolio states to provide some insulation from near term volatility that's happening in certain markets.
Fourth embraced your mission, we believe in expanding access to cannabis as a means to improve wellbeing.
This quarter five dispensaries served as a premier sponsor of head counts cannabis border project to encourage voters to go up to the polls by registering informing voters from support Canada's policy reform.
And while President <unk> recent executive order is a step in the right direction. There is still a big capital Hill to climb.
We're proud to be part of this effort and we will continue to do important work to support cannabis policy reform and restorative Justice.
And finally, we believe in our brands. We appreciate the flower and we embrace our craft at every opportunity.
With that we'll open up the call for questions operator.
We will now begin the question and answer session.
To ask a question you May press Star then one on a touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
Is it any time your question has been addressed and you would like to withdraw your question. Please press Star then two.
We ask that you please limit yourself to one question.
At this time, we will pause momentarily to assemble our roster.
The first question today comes from lithium <unk> with Cowen. Please go ahead.
Hi, Thank you so much and good evening.
Hi.
We got a lot of inbounds on the on your circle K announcement, not surprisingly so many Canada Ceos in particular in Canada and talked about the possibility of selling through the gas and you guys are actualizing. It two very interesting partnership with circle K I recognize that a lot of this is probably compare.
<unk> sensitive, but can you expand at all on like Capex spend.
Are you guys responsible for circle K responsible for anything are you paying them rent is there a revenue sharing involved with any incremental detail on the financial relationship would be helpful. Thank you.
Sure. Thanks, Vivien, it's Ben Thank you for the question.
Not much more we can say than what we've already said I think it's a standard landlord tenant relationship and we're paying rent.
As of all rise dispensary locations in Florida.
This is a separate entrance into adjacent to the convenience store the patients need to have valid idea with the state and are subject to just sort of normal regulations in the state of Florida.
And that's about all we can say, we're pleased with the progressive thinking of the counterparty here and.
I think this is where the momentum in the world is going but it's a crawl walk run approach and we're excited about what's ahead and look forward to 2023.
Okay. Thank you.
Sure.
The next question comes from.
With Wolfe Research. Please go ahead.
Good afternoon. Thanks for the question. So I just wanted to focus on pricing for a minute. How are you thinking about industry pricing as we head into <unk> and then into next year and then with the increasing constraints on capital that we're seeing across the industry. Do you think we'll start to see more rational capacity expansions or do we still have to wait on that.
Hey, Spencer Anthony here I'll take that question, it's a great question.
Look I said in the prepared remarks, we started to see a slowdown in that in the price compression that we really started to experience earlier in the year, where it goes from here. It candidly, we don't have a crystal ball, it's anyone's guess.
One of the things we like about our business is the diversified kind of approach to it.
Because we're not experiencing kind of the same level of compression across the entire market base.
2023 looks like candidly just anyone's guess.
In terms of the impact.
You know the capital markets.
<unk> SL.
Essentially capacity.
And in that you know that corresponding impact on pricing again, it's really difficult to say this really comes down to a market to market.
A discussion, but obviously with the capital market tightening that we've seen.
That's less dollars available for Capex, which really should show up over the next several call. It 12 to 36 months, so TBD kind of what the true impact is again it really just comes back to market to market, but we certainly think that the.
The capital market challenges that we're experiencing today will show up within the business at some point in time.
Got it thank you.
The next question comes from Matt Mcginley with Needham. Please go ahead.
Thank you so with wholesale price compression and operators, becoming more vertically integrated than many of your key wholesale markets I think having net wholesale revenue was flat.
A solid result was that primarily in new Jersey that was offsetting weakness in other markets or did something else help you in that wholesale segment in this quarter.
On the comments you had on the pricing is that something that actually helped the third quarter or is that more of a prospective comment that pricing is now looking at second derivative positive and it's.
Beginning to stabilize or I guess, if that's something actually flow through the P&L and helps you in the in this quarter.
Hey, Matt Anthony here. Another good question. So in terms of kind of what we experienced on the wholesale side of the business New Jersey helped but overall. This was this was quiet right I think the team did an excellent job at really taking advantage of all the opportunities that presented themselves within the market.
But this was not just in New Jersey story.
We kind of mentioned during the prepared remarks. It was a 7 million dollar kind of increase in gross.
In a flat kind of net but.
It wasn't all driven by one specific market. Your second question do you mind, just repeating it just to make sure I've got it straight.
I want to make sure I understand what you're commenting about it around the pricing being a little bit better is that is that second derivative positive and thats that will look better or stabilize I guess for us or you're saying that pricing actually had a had a positive impact on your on your EBIT margin or top line.
In the third quarter.
You know it's.
I mean look pricing certainly didn't help kind of wholesale revenue in the quarter.
The impact relative to Q2, I think we experienced slightly less compression in Q3 over Q2, but this was really kind of a unit game I mean, we were able to drive the growth by producing and selling more units, we didn't experience a big benefit from even the slow down in pricing that you just alluded to.
Okay. Thank you very much.
The next question comes from Eric <unk> with Craig Hallum Capital Group. Please go ahead.
Great. Thanks for taking my question and congrats on the solid results here.
Then you mentioned that worrying about the downside is just as important as preparing for the upside.
I think that's incredibly.
<unk> will become increasingly apparent here could you just expand on that comment a bit maybe give us. Some examples of how you've implemented that in the past and then perhaps how that philosophy is informing some of your capex decisions today. Thanks.
Sure. Thanks, Eric I appreciate the question.
Good one.
Doug or we're paranoid.
And so instead of just constantly thinking the glass is half full although were optimistic people and we'd like to be upside we're prepared for the worst and so it's come up all over the place it's come up in our M&A strategy has come up and where we've expanded to please come up and keeping a healthy amount of cash not getting too much debt.
You can't bank on what we don't know and especially what we don't control. So the start of any particular market is always late.
And it takes too long cost more than you think.
So we just it's hard to put everything on the Com. The biggest thing we have confidence in us the demand on the product suite.
Sleep incredibly well on that we just kind of focus on that are worried about everything else that could go wrong, because it's not that we tend to do okay. We make products that everybody likes to make brands that are simple stories to create an honest relationship we're going to win.
And then we've got to be ahead of the distribution, we gotta be ahead of several other things but I.
I think we're always worried about what can go wrong I think we say expect the unexpected I think we think about in first the problem or.
What would you not do those are those are kind of inverse inverted questions. We often ask you that I think generate edge and how we analyze problems because this is a unique game.
E market with 30 different states complex federal environment in which it's hard to handicap, what's happening out of D. C. So.
Hope for the best prepare for the worst and hope really isn't a strategy. So.
Hopefully that helps a little bit yes.
I appreciate the insight thank you.
Thanks, Eric.
The next question comes from Aaron Grey with Alliance Global Partners. Please go ahead.
Good evening. Thank you for the question here.
So I wanted to hear a little bit more on the vertical position you spoke a little bit on the progress there in terms of selling into your own store.
I just wanted to know how much of an impact do you save there might've been on third party wholesale business looked pretty strong you spoke to some of the unit growth that you saw so do you feel more comfortable where your own brands stand today within your stores do you feel like there might be some more room to go and sort of in terms of vertical integration and then how do you feel like it is for some of the broader participants in the market outside of yourself.
Thank you.
Hey, Ron Anthony here I'll take that one another good question.
So you know.
I mean look we.
We see a lot of things around here, one of which is the brands need to be able to stand on their own two feet.
Concept of being able to move your own goods three on retail you can do that for a period of time.
But over time, the consumer will either stopped showing up more gravitate towards the other products.
If there is not real real value differentiation so fortunately.
Fortunately when we've seen it across our store base that our brands are able to kind of perform pound for pound against the other the other products out there and so that's one of the things. We're just incessantly kind of focused on.
Whether or not we continue to kind of lean in on the verdict County being a part of it is.
We just have to take what opportunities are given to us. So every market is different the supply demand dynamics within those markets are materially different and so as opposed to us thinking kind of top down how do we optimize its really bottoms up on a market to market kind of basis.
I hope that kind of answered the question, but again it really just comes down to a market to market kind of game.
And we just optimize our position within the within each respective market.
That's helpful detail thanks for that.
Great.
The next question comes from Andrew Bond with Jefferies. Please go ahead.
Evening, I'll, Andrew Bond and the line for Owen Bennett, Thanks for taking our question.
So maybe stepping back from quarterly delivery for a moment I wanted to get your thoughts on the up listing so specifically your thoughts on the recent actions taken by canopy to consolidate our U S plan touching operations.
Through a ring fence structure in this appearing to be permissible by the Toronto stock exchange based on recent comments from <unk> officials.
This is the case and this is permissible would green thumb explore a similar structure to be able to uplift to the <unk>.
Just very interested to hear what your thoughts might be.
Puts and takes around these recent developments and what this might mean for uplift potential for msos. Thank you.
Yeah. Thanks, Andrew It's Ben here. Good question on the topic that I think it's been on everybody's mind.
I'll speak to it I think a direct listing has been on our mind for several years I think we zoom out and back up.
The first one of the early companies registered with the SEC file an S. One do GAAP financials and stay compliant there.
We're focused on building the best business in the current landscape and assume that eventually we'll be able to list directly on a U S exchange.
We continue to study the structural changes that are out there understand what's happening in sort of different.
Lines of ways, but I would say a listing in the U S remains a key objective of ours, we have to do list prioritization in order to make that happen and we're focused on checking those boxes.
Don't think it's likely for us to explore very creative legal structures in order to sort of get somewhere but we're always open to new ideas. We are looking at studying but our northstar remains sort of what I said and I believe a direct U S listing is in the future.
That's what we're planning for it.
Great very helpful color Ben Thank you I'll pass it on.
Sure.
The next question comes from Pablo <unk> with Cantor Fitzgerald. Please go ahead.
Thank you Anthony can you talk about the drivers for the fourth quarter.
You go into some new capacity that will be coming through in October November December in key states. I mean, you talked to all the Capex and the same things you can give color in terms of any new stores in the fourth quarter and then I know, it's only just one question, but thank.
Thank you for the color regarding the resignation of three board members I mean, the press release talked to all of this agreement as to the company's policies and practices related to personal misconduct I have to say that that's not very common but as you'll have seen that one thing that everyone agrees on its whats construes personal lending has gone back. So I don't if you can give some color on that then but.
Anthony if you can answer my question. Thank you.
Sure So Pablo.
Good question.
We don't have.
We don't have much juice in the fourth quarter.
In terms of new stores and new facilities coming online.
The only thing that could potentially pop up is.
Rhode Island.
Going live with adult use we think December one as kind of a target date, there, but other than that most of the capacity expansion that.
That we've completed it was really going to start to show up in the early part of next year and then throughout the balance of 2023, so not a lot of tailwind that we got within the business.
At the moment.
Although there has been an interesting question. So thanks for asking and I'm glad you did.
So what I can say is the former directors gave the reasons publicly in the resignation letter and it's tough for me to really expand on that.
I think like we stated the reasons had nothing to do and it's important to emphasize nothing to do with the company's business performance our operations financial performance I think about the financial statements or even the financial controls.
Can't say, that's it and as you know Canada is a tough and very unique industry says dotcom and nothing in Canada, particularly common and everyday we managed risks related to operating in a federally illegal space.
And it's not for everyone.
From my perspective, former directors and management were fundamentally not aligned really on some of the core aspects of our industry.
As you know, having an aligned management and board remains fundamental.
So I do want to say I appreciate the experience and insights they brought to their 10 year, but the business and we're focused on moving forward.
Finally, there's really I said in my prepared remarks.
Higher question strong corporate governance remains a top priority.
We continue to actively recruit new board members in preparation for a potential U S listing.
The next question comes from Andrew <unk> with Stifel. Please go ahead.
Okay.
Hi, congrats on the quarter and congrats as well on the Alamo upon soon Couche Tard agreement.
Maybe just continuing on.
The ladder if you could.
I'm wondering if you could talk about you know how how this deal really came to be how long have you been working on it.
Why did cusco choose to GTI in Florida in particular versus any other operator jurisdiction and if theres any other kind of collaboration that we could see.
Between both companies seeing is convenience is a common aspect in both businesses.
Sure. Thanks, Andrew It's Ben I'll take that I'll share, what I can and certainly I can't speak for Couche tard.
For us and our strategy and how we've thought about it we've been planning and strategizing how candidates as can be.
More easily accessible for everyday American consumers across the country in their everyday life. We've been banging. The drum that this is a means to wellbeing and thinking like the American consumer we said it I think in every conference call. It at leads us down a path like this leads us to a counterparty.
With progressive and how they've thought about it this is not their first foray into candidates they've done an arrangement fire flowered we've seen that.
But it takes a while to do any kind of arrangement partnership landlord tenant anything in cannabis as you've seen across the spectrum across the supply chain.
And so we're very excited about what we have here, we're very aligned with the test and learn phase of 10 or a dozen stores coming in 2023, we're head down in executing that AR.
And making sure we get that right so that when those already and when those reserves inspected or approved and we opened and we get going.
That's the range, but there is no more comment on what we would do with them or anything like that I, just think what youll see from Green thumb is continued thinking like the consumer to continue to drive a better experience and for us that those answers emerge as more common sense similar to how we think this will look over time.
Thank you.
The next question comes from Michael Lavery with Piper Sandler. Please go ahead.
Oh.
Thank you good evening.
Just wanted to see if you could unpack the 22% volume lift and maybe just.
And some of them I'm sure it's hard to measure but is.
Is it driven primarily by share gains from illicit trade.
The price compression at least helping.
Helping in terms of penetrating with those consumers are you seeing increases per consumer.
Is it ticket or traffic just how much can you kind of understand the drivers of what's really behind all that.
Good question, Mike. This is Ben I'll start there maybe anything I'll jump in the 22% unit growth Youre, referring to I think is what I said in my prepared remarks at the BD SA industry data not a green thumb stat.
Jump in if I had it wrong.
Yeah, I might have misunderstood that care about that.
And so what we take from that really like I said, the American consumers use cannabis is essential to their well being and it has a real viable share of market we've talked about.
Being recession resistant I think that holds true so to your question on what insights do we see in consumer trends along those lines.
It doesn't seem that wild for us it makes a lot of sense I think it's been talked about a loss instead of buying a lot of premium eights, you might buy a lower price value have to get <unk> for a little bit less dollars, but continue to get the positive experience from the product because it's not going to leave your daily lives and so as we begin to understand it 80 20 to consume.
Base understand those form factors.
A lot of confidence in what's happening at Volvo hold 22% unit growth. So I think you also asked Peel that back a little where are you seeing it is a combination of a lot of things I don't think individual consumption is up 22% Standalone new states coming on.
Asset growth in certain markets, New Jersey, and others that are growing but as you unpack those state of the states and look at what's happening in there.
You know I believe the consumption is not going down share gain from a legal new markets coming on and better experience for the consumer leading to repurchases and grain position in their lives and as we bring convenience and on Prem and make this easier for American consumers, we think growth is in store.
Okay, great. Thanks, so much.
Sure. Thanks, Mike.
The next question comes from Scott Fortune with Roth Capital. Please go ahead.
Yes, good afternoon, thanks for the questions.
Real quick I wanted to talk about New York market, but I just wanted to follow up on the U S exchanges and potential up listings there.
Are you seeing what's kind of the pathway to up listing are you seeing more discussions and you havent passed.
What's the concern of the exchanges to overcome right with potentially see plus.
<unk> or the sinton or AML guideline changes there and then just wanted to talk about New York market kind of the timing.
The expectations of that with the new regulations coming out.
Kind of optimizing our New York market for <unk> in the future and is it becoming more like a California market, where there's going to be a thriving illicit market and establish the slow retail rollout. There. So just kind of your sense on that and that would be helpful.
Sure. Thanks, Scott a couple of good questions on listing.
I think every day you can get a little closer I think you saw Senator Schumer comments. This week, we saw buying a month ago. This is a growth industry in the United States. This is an economic stimulus package that its communities that need jobs need tax revenue.
And it's also bringing a lot of well being we've talked about the opioids, we talked about sleep and other sorts of things. So so let's it makes a lot of sense.
How does it actually happens what's in the details a little bit unclear.
Other strong force that's happening here is the need for capital access, especially for new entrants to the industry at non paralyzing rates, especially in a rising rate environment, there must be access to capital or there is no industry and in particular he has no newcomers.
Some of US can produce capital on our capital that we've created a machine here, but in order to stimulate new entrants, which is something we're very positive on the cost of entry thats without access to capital has to happen and listing as a part of that as we engage in the U S banking system small business loans and favorable sort of structures to stimulate investment. So all of that's part of the same story.
And.
The phrase we were safe plus something like that there's action.
Obviously next week's elections important and we'll see what the table it looks like towards the end of the year.
On New York.
We're head down execute theres, a lot of noise, but there's 20 million people in the state and we're going to want to consume a lot of premium indoor rhythm flower are very focused on what we're doing and controlling what we can control. So we're building a world class facility in Warwick loves the community. We love. The employees were excited we're looking forward to sort of doing that waiting for.
Clarity from the regulators, it's a confusing situation out there we're trying to be an asset and have constructive conversation about how the rules, how the timing and how the structure will work.
I think it's a little early to say New York, California, and there we are.
Keep in mind, California passed medical in 1990 625 years later, there's a lot of issues, okay and.
George It's just license all of the hemp growers, we have a lot going on we saw some interesting news yesterday on testing requirements or lack thereof is going to be a lot of learning as we go Fortunately for us our shareholders and a lot of experience, making cannabis facilities building high quality product and getting this going so that's our playbook. We think it starts in 2023, if I had to bet I would say the second half of.
$1 23 at real size, though states historically will open sooner and I think it'll be a unique path not a day, one like everywhere else, but for green thumb head down execute if we produce high quality for our goal a lot of dog walkers, we think consumption of the state is going to be strong and we're going to get the return on invested capital that we plant. So were pumped about 23 in New York.
Thanks, I appreciate the color.
Sure Scott.
The next question comes from Sonny Randhawa with CT Research partners. Please go ahead.
Hey, great. Thanks for taking my question and congrats on a good quarter I was hoping you guys could give me some color on <unk>.
Virginia in Minnesota.
Virginia tracking in terms of new patient growth with the with the new requirements that are I think you have a full quarter of <unk> as of Q3 and in Minnesota I think we also saw a pretty decent ramp in <unk> and new patient growth.
For Q3 is that directly related to the edibles or just I guess, some additional color on both those markets and how they're ramping ramping relative to.
Some other medical markets as they were ramping.
Yes, Anthony here some good questions look obviously, we're very bullish on both markets.
Virginia, specifically.
When the adjustments rolled through in terms of how patients can get access we definitely saw a bump and at this point, we're seeing a nice steady climb on a monthly basis.
Obviously, starting at a much smaller base so its going to take some time to build we kind of tell the team. This looks like Illinois, Pennsylvania. Some of the earlier kind of medical markets. When they first kind of got their initial lift but I will tell you that we're pretty excited about what's going on there. We've got you know.
Our another facility under construction that should operationalized in the second half of next year and so and in addition to that we still have two more stores that were working hard to open up which should happen in the first half of next year.
Minnesota.
<unk> story.
The the edible legislation or regulations that certainly did allow for an immediate kind of pick up.
From the consumer you know again, that's another market, where we're seeing nice steady kind of month over month growth. The reality is there is that you know.
Working hard to also open up we've got two additional stores. We're trying to open up we have a large expansion that is currently kind of taking place that should operationalized in the second half of year and again, it's one of those medical markets, where we've essentially seen the movie before where we can point to other markets and look at the growth trajectory and just where they are from.
Based off of when they when the programs effectively start in terms of timing so.
Big plan for 'twenty three in both states and we really think.
The best is yet to come in both Virginia, Minnesota.
Or I'm, sorry, just a follow up on Minnesota are those two new store is going to be in the I guess the.
The twin cities area, I think 54% of the new patients or total patients are in that market and you only have two stores.
Yeah. So.
Minnesota has a unique way of kind of breaking down the jurisdictions, but that's absolutely right. The two stores that we still have to open are in highly dense populated areas and so that's why we're working you know the team is working pretty hard to get those open.
Alright, thank you.
The next question comes from Matt Bottomley with Canaccord Genuity. Please go ahead.
Good evening, all congrats on the strong quarter just on the slight expansion in the adjusted EBITDA margin.
This might be housekeeping, but I'm just wondering more on a sequential basis. So you had talked on an adjusted basis that that SG&A had decline, but it looks like on the face of the consolidated number there was a pretty sizable bump in SG&A. So I'm just curious if theres a noncash element to that to consider or if it's just a transactional or things that are nonrecurring and then just a quick for.
Up to what Pablo Pablo had asked about just on the on the board resignations Theyre not to press the issue, but I know you guys were very thoughtful in how you you mentioned, it's a difference of opinion, it's non operational and then and then Ben I think you had alluded to some some differences between how.
The federal.
Schedule, one element to this industry, which impacts all operators that does sound more operational to me, although albeit it impacts every MSR when every legal state operator.
Versus personal misconduct, so I, just sort of putting it back to you guys. If there's any other commentary on them I'm only really asking because it's clearly.
Topic that we're I'm sure all analysts are getting a lot of inbounds on thanks for any comments.
Hey, Matt Anthony here.
Good question, well, let's do not permit so.
Let's start with kind of the.
The GAAP SG&A figures.
In the second quarter, we had there were some.
Secondly, some noncash fair value Remeasurement about $15 million that was one time that effect, we brought that SG&A number down.
So that's why if you look.
It just look even in the press release Youre looking at 63, five growing to 82 five the reality is that the 63 five.
If you normalize that and add back the 15 million noncash that relates to some fair value re measurement because that number is much closer to the kind of the GAAP number that we saw in the third quarter.
Internally, we look at normalized cash based SG&A.
That strips out depreciation and amortization.
That's trips out stock based comp and then you've got some of the add backs as well and so that was the number candidly.
That we were most one of the most excited about for the quarter.
We had kind of a normalized SG&A of 57 million in the second quarter and $53 million in the third quarter.
And again that was really driven by <unk>.
Frankly some of the.
Some of the tightening that we did earlier this year that really is now starting to show up within the P&L.
As it relates to your second question I'll, just tell you that at this point, we have no further commentary and what we said we can't speak for the former directors. We understand that you all are continue to get some inbound calls.
We've been pretty direct as far as what we can and can't say here and we'll stand by that.
Okay I appreciate the comments thanks al.
This concludes our question and answer session I would like to turn the conference back over to Ben <unk> for any closing remarks.
Sure. Thanks, Maggie thanks for joining us everybody I'll be back to you in late February early March with liquids, the annual numbers and wish everybody, a safe and healthy holiday season and talk to you soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
Okay.
Hum.
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