Q4 2022 Green Thumb Industries Inc Earnings Call
Ladies and gentlemen, the Green thumb conference call will begin shortly thank you for your patience.
[music].
Good afternoon, and welcome to the Green thumb fourth quarter and full year 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.
Ask for a limit of one question per person.
As a reminder, a live audio webcast of the call is available on the Investor Relations section of Green thumb website and will be archived for replay.
I'd like to remind everyone that today's call is being recorded.
I will now turn the call over to Shannon Weaver, Vice President of Communications. Please go ahead.
Thank you Betsy and good afternoon, and welcome to Green bonds fourth quarter and full year 2022 earnings.
I'm here today, with founder and CEO of Bancorp.
President Anthony Georgiadis, and Chief Financial Officer, Matt Fox.
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 the earnings press release issued today, along with our reports filed with the United States Securities and exchange.
And Canadian Securities regulators, including the 2021 annual report filed on Form 10-K.
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 throughout the discussion green thumb will refer to non-GAAP financial measures, including EBITDA adjusted operating EBITDA and adjusted net income.
Reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is included in our earnings press release, and I think the guys ear filings.
Please note all financial information is provided in U S dollars unless otherwise indicated thanks, everyone and now here's Ben.
Thanks, Ken Good afternoon, everyone and thank you for joining our fourth quarter and year end 2022 conference call.
Have evolved the format for today's call. Now then Anthony has assumed the role of president.
As our new CFO .
I'll lead off with an overview of our results and some observations on the current state of the industry.
Anthony will discuss our operations math will dive into the financials and then I'll close with some final comments.
Alright, so let's get started.
We feel good about our fourth quarter and full year 2022 results posting $259 million of revenue with $81 million of adjusted operating EBITDA and 1.12 billion in sales with $311 million of adjusted operating EBITDA, respectively.
Like other companies across industries, we faced new challenges in 2022, the highest inflationary environment in 40 years consumers in the pocket book high interest rates and further squeezed access to capital, especially in cannabis and are concerned about a recession that continues to move over the economy.
Even so greenfield reached a new milestone in 2022, as we crossed $1 billion in revenue.
This is a 14% increase in revenue year over year and it represents nearly buybacks category growth, which was 3%.
But 2022 was not just the income statement differentiator for Green Dot.
We are also proud of our year, ending cash position of $178 million and full year cash flow from operations of nearly $160 million.
Both of which are paying the government almost $120 million in cash.
Additionally, in 2022, we extended the maturity of our senior debt $250 million at 7% to April 2025.
Yeah.
On a GAAP basis, we reported a net loss of $51 million in the fourth quarter and net income of $12 million for the year, both of which included $89 million impairment charge related to our Nevada business that Matt will cover in more detail.
Without this impairment charge, our net income would have been 12 million for the fourth quarter and $75 million for the year.
I also want to point out the concerns around price compression in our industry are very real.
There is a bad margins and easy money and candidates are waning as people digest tax rates and high cost of capital the dollars run out and margins to what we do.
We're in the midst of a washout that will lead the industry with fewer operators not more.
This is ironic as politicians and operators are talking about putting more folks not less.
The pricing pressure has squeezed margins to a spot given to me there is not the cash flow for the marginal player.
But if we zoom out we see year over year unit growth of 28%.
Is the best indicator for us that consumer demand given the changes in pricing.
This massive unit growth on a like for like basis continues to show US the candidate isn't a central purchase for American consumers.
By now you probably know the cash is king at Green thumb drives every decision we make and every dollar we spend.
Given no meaningful federal relief on community banking restrictions.
Having a strong balance sheet is absolutely critical to executing our growth strategy and creating sustainable value for our stakeholders.
Over the past three years, we have paid $340 million in state and federal income tax.
Give you a glimpse at some of the irony of current tax policy during that same time, Illinois collected over $1 billion in cannabis tax dollars, yet our business and new social like when you start ups in Illinois cannot deduct dispensary employee wages or dispensary rent on the Illinois tax return a solid double digit by the state.
U S cannabis industry reached $26 billion in 2022 that is tremendous growth from virtually zero a decade ago.
This kind of growth attracts a lot of prospectors and get rich quick.
For a variety of reasons these folks will get caught and eaten by the behr.
We believe true success in this industry boils down to managing capital.
And producing amazing products.
We believe in rhythm dog walkers Incredibles at BMO.
Been doing what we said we would do since going public in 2018. So by now most of you know us focused disciplined hardworking and true believers in the right well being through cannabis and the long term viability and vibrancy of our industry.
For those just getting to know as we look forward to demonstrating these trades to you consistently over the short and long term.
We are confident that our company is in good shape to weather the macro turbulence, but paying attention to the fundamentals studying the consumer and practicing common sense, while running a sustainable business.
Well it does worry me as a gimmick promise for fresh participation in this industry, especially for black and Brown entrepreneurs.
Greenville has strongly advocated for the opportunity to build well among those most impacted by the war on drugs.
The best intentions, many states instituted social license programs.
Generated a lot of excitement and open those communities.
Theres been some unintended consequences that have led to widespread disappointment.
When you're in an industry with severely restricted access to capital you have to contend with Julie tax penalty and a single operator, it becomes very difficult to create real value once awarded a license to operate a retail or cultivation facility.
The very people that social equity licenses, we're supposed to help or less pretty helpless.
We believe everyone would benefit from a solution to these problems from the federal government consumers would have more buying options new cohort of entrepreneurs will emerge communities with drive from new business formations and existing operators to expand product distribution.
Until then green Dot will continue to fight the good fight by advocating loudly and supportive organizations and programs geared towards preparing those entrepreneurs for the hurdles ahead.
It is by no means homeless, but it's there.
Taking too long for state and local equity programs to achieve meaningful results with almost nine out of 10 Americans favoring some form of cannabis.
Realization.
I think federal Representatives will pay closer attention to their constituents and past safe banking.
But right now the best way to create changes to drive more people to both especially the younger generations. That's why rise dispensaries as a premier sponsor of head count in Canada water project, and we look forward to registering new voters and increasing voter participation across the country at dispensaries as well as concerts and festivals.
[laughter].
We look out we continue to see an industry that can triple in size over the next decade, and while we enter the middle innings. This is them.
Marathon and not all runners will finish we are confident that the ingredients. We have in place since 2014, we have the right team the right assets in the right States. We respect the planned believe in the product and the wellbeing it creates.
Now I'll turn the call over to Anthony our newly appointed President.
To talk about our operational progress in 2022, and what to expect in 'twenty three Anthony.
Good afternoon, everyone. Thanks for joining.
As Ben mentioned, despite experiencing a number of headwinds outside of our control 2022 and solid your breakdown.
We generated record revenue and adjusted operating EBITDA.
We completed the rebranding of a rise retail store model concept rolled out throughout 2023.
We ended December with $178 million of cash notwithstanding the $237 million gross capex investment back into the business throughout the year.
Our favorite.
Generally 159 million in operating cash flow, while remaining 100% current on our taxes with our largest financial partner uncle Sam.
Other accomplishments include the launching of adult use sales in Rhode Island, and the completion of CPG capital expansion projects in Ohio, Maryland, Pennsylvania, Florida, and New Jersey.
In addition, the company drove expansion of its rhythm dog walkers vivo an incredible brands.
Lodging or additional rhythm flower strains the Dog-walker 12 pack and a variety of ratios gummies for people and incredible to address the effect based market such as the Skus you are very common.
While our business and financial performance was respectable.
It was a tough year.
We experienced pricing pressure in many of our markets.
Went through a hyperinflationary environment combined with a global supply chain crunch that drove up both capital investment cost as well as operating costs.
And we got left at the altar by our friends in Washington fundamental basic banking.
Unfortunately, as we look ahead it seems the macroeconomic and consumer challenges in 2020 to remain with us for a while.
As a result now more than ever we believe the cash flow generation and balance sheet management are critical components of long term success.
This bodes well for Green Dot shareholders I suppose are core to our DNA and have been since our founding in 2014.
At the same time, not all assuming that.
We have a number of positive catalysts and should allow us to continue to grow revenue and generate healthy cash flows even if various fundamentals in many of our markets don't improve.
They include.
Opening of additional retail stores in Pennsylvania, and Nevada, Minnesota, Virginia, and Florida.
Strong momentum in New Jersey, Virginia, Minnesota, Connecticut, and Rhode Island.
Strong demand and share growth for rhythm flower, where we continue to leverage our best in class indoor infrastructure to compete at the premium end of the value chain.
And the potential commencement of adult use sales in Maryland.
As we look ahead to the balance of the year within CPG, we intend to continue to focus on the consumer through innovation and expansion of our product portfolios as well as improving overall operational efficiency and product quality.
In retail we will focus on execution of our corporate rebrand.
The development of our Omnichannel strategy, keeping substantial product depth and diversity on our shelves and industry leading.
Of course, none of our success would be possible without our incredible team and all of their hard work and dedication.
I've assumed the role of president, it's more clear than ever that the.
<unk> is a jeep.
And in order to continue to thrive, we would need to work together to utilize the playbook that largely got us here.
Number one continue to closely manage our balance sheet, especially our cash levels are outstanding and total investment in inventory.
To maintain strict discipline on all capital spending and operating expense investments.
Three operate the business with a focus on cash flow generation above all else.
Sure improve operational efficiency, especially on the CPG side of the business.
But continue to build and develop our team they are the ones that make the magic happen each and every day.
With that I'll turn the call over to Matt <unk>, our new CFO for his review of Q4 and 2022 results.
Well, Matt maybe a new name for all of you and Matt and I haven't worked together since prior to us going public in 2018.
He's been a key contributor to our success over the years so.
So welcome Matt.
Okay.
Thanks, Anthony and Hello, everyone.
Happy to be talking to you for the first time from the sea.
As Ben mentioned, we generated just over 1 billion revenue in 2022.
A major achievement and milestone for the company.
This represented a 14% increase compared to the prior year.
We reported fourth quarter revenue of 259 million.
Six 4% increase for the fourth quarter of last year.
The year over year increase was primarily driven by the legalization of adult use sales in new Jersey and revenue generated from acquisitions made throughout 2021.
Other key contributors to our year over year performance included the expanded distribution of Green thumbs branded products.
Three new store openings and increased traffic and the company 77 open operating retail stores.
Overall retail revenue increased 14, 2% versus the fourth quarter of 2021, and 24, 1% for the full year.
Fourth quarter comparable sales increased three 4% over the prior year base 65 stores.
Consumer packaged goods gross revenue increased one 7% versus the fourth quarter and 6% for the full year.
Gross profit for the fourth quarter was $124 million or 47, 8% of revenue compared to 129 million or 52, 8% of revenue for the fourth quarter last year.
For the full year gross profit was $504 million or 49, 5% of revenue versus $492 million or 55, 1% in 2021.
The decline in gross margin percent for the quarter and year was primarily driven by price compression and inflationary factors.
Yeah.
Turning to Opex selling general administrative expense for the fourth quarter.
$80 million or 39% of revenue compared to 74 million or 35% of revenue for the fourth quarter 2021.
SG&A, excluding depreciation amortization and onetime transaction costs and stock based comp.
We refer to as normalized operating costs approximated 50 million compared to $53 million in Q3, and 57 million last year.
Cost control in this current environment is critical and these results provide evidence of our success in managing those costs.
Oh SG&A for the full year was $294 million or 28, 9% of revenue an increase from $2 77.
Or 31% of revenue in the prior year.
Normalized operating cost as a percent of sales for the year was 21, 3% compared to 22, 2% last year translating to a $9 million reduction in cost for the year.
During the fourth quarter of 2022. The company also recorded a noncash impairment charge of $89 million related towards Nevada business.
This consisted of two charges.
A $58 million goodwill impairment charge and a $31 million write off of the essence trade name as a result of the rise of rebranding.
The company generated a net loss of 51 million or 22 cents per basic and diluted share during the quarter. This compares with earnings of 10 cents per basic and diluted share reported last year.
Noncash impairment charge of 89 million adjusted basic and diluted earnings per share or five cents for the quarter.
Adjusted operating EBITDA, which excludes noncash stock based compensation and other non operating costs and the impairment charge. I. Just described was 81 million or 31, 3% of revenue for the quarter as compared to 76 million or 31, 2% of revenue for the fourth quarter of last year.
Improvement in operating costs as a percent of sales drove the year over year increase in adjusted operating EBITDA.
The company generated net income of 12 million <unk> per basic and diluted share for the year.
Excluding the noncash impairment charge of 89 million adjusted basic and diluted earnings per share were 32 centers for the year.
Adjusted operating EBITDA for the full year was 311 million or 36% of revenue compared to $308 million or 34, 5% of revenue last year.
On the liquidity front, we ended the year with a strong balance sheet, including cash of 178 million and working capital of 205 million compared to $160 million last year.
In summary, we feel good about our Q4 and full year results and look forward to the future.
We've been thoughtful and deliberate in choosing the right markets expanding our brand and product distribution to go deeper in these markets and investing wisely and facilities to meet consumer demand.
As we look forward, we'll continue to maintain our focus on execution high value capex allocation maximize returns to our shareholders.
With that I'll turn the call back over to that.
Thank you Matt in closing I'm very grateful to the entire green thumb team of our incredible cultivators should grow the highest quality flower to our thousands of team members, who serve our patients and customers and our dispensaries across the country.
Combined efforts and dedication of our team delivered outstanding results in 2022.
This year, we published our inaugural social impact report and building a report I was struck by how important creating meaningful change is to green thumbs culture.
It's the glue that holds us together from the plants, we grow to the products, we produce to the wellbeing, we delivered to customers.
Find our social impact report on our website and we hope you take a few minutes to read it.
I am optimistic about the future of the U S cannabis market in Green thumbs leadership role in it and.
And while cannabis is a complicated highly regulated business the demand from Americans remains.
We're also living with a great deal of uncertainty economic pressure on consumers are highly devices Federal Congress global anxiety.
All of these things are beyond our control. So we will focus on what we can control, how and where we invest your dollars and the quality of rhythm flower dog walkers pre rolls and vivo gummies.
We need to concentrate there and the rest of football.
We are intensely focused on cash generation and best use of capital to deliver returns and create long term value for all of our stakeholders come what may in 2023, we are prepared to weather it while keeping our eyes fixed on the horizon.
Long term cannabis opportunity remains of minutes, if you have the right ship to navigate it.
That will open up the call for questions operator.
We will now begin the question and answer session.
I asked the question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
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During the question and answer session, we would ask for a limit of one question per person.
At this time, we will pause momentarily to assemble our roster.
The first question today comes from Matt Mcginley with Needham. Please go ahead.
Thank you.
I know you had previously hoped you could sustain a 50% gross margin rate or better but this quarter. You are you are.
A few points below that what additional actions can you take to sustain or improve gross margin in 2023, and now that Illinois seems to be experiencing a more rapid pace of wholesale price compression should we assume that the 23 rate will be lower than what you were able to achieve here in the fourth quarter.
Hey, Matt This is Anthony I'll take that one great question.
Here's what I'll say number one every quarter is different and obviously no one likes to see the gross margin line go down.
Two while we do have some scale, but we're still growing into on the CPG side of the business.
Price, we're not immune to the price impact that we're seeing in a number of these markets.
And when you impact that what makes the <unk>. The data somewhat murky is that we've got two things kind of happening on the price front.
You've got folks who are trading down so they're still buying in eastern Canada, but they're they're trading down there literally buying less expensive kind of brand.
Not be up to the same quality level and at the same time, you had true price compression, where you have like products that are effectively <unk>.
It's less than they were call it a quarter ago.
So you know as we look ahead to the rest of the year. That's one of the things we're gonna be watching pretty closely.
So we are doing a few things to combat it and you saw what we did here and now you know within the fourth quarter number one.
Gross margin isn't the only lever that we have within the business to kind of watch margins. So we're we're obviously closely watching yesterday at Elan, we are working hard to get more operationally efficient on the CPG side of the business and at the end of the day. We're also you know we continue to look at the Verde County that we're seeing within our markets.
If there is more that we can now we can do on that front.
At the end of the day, though for US it's all about cash flow so while while gross margin as it is a component of that you know we've got other tools in the toolbox that were kind of utilizing to minimize the impact.
Thank you.
The next question comes from Papa Giovanni with Cantor Fitzgerald. Please go ahead.
This is Matthew Baker on for Pablo.
For our first question we were wondering what explains the steep drop in price in retail prices in Illinois. Since early December from our view it seems quite sudden and we want to know if it's stabilizing or worsening and then secondly, I was wondering if you could remind us of where you may have new capacity coming through her store ramp up in 2023. Thank you.
Okay.
Alright, Matt This is Anthony I'll take that one so.
You know.
Where we're seeing some price impact in Illinois, but not to the extent that you're kind of alluding to you know what.
One of the things that could be happening is obviously with Missouri going adult use that may be impacting a lot of the border stores there.
But generally speaking while we're seeing some compression. It's it's nothing that's it's not as extreme as we've seen in other markets.
<unk>.
Well can you can you repeat your second question.
Yeah.
Yeah, just wondering if you could remind us of where you have new capacity coming through or a store ramp up in 2023.
Oh sure. Okay. So let's start on the retail side, which you know, which I mentioned in my prepared remarks, you know we've got a goal of opening approximately mid teen number of additional stores this year.
And it's really you know across the following markets, Virginia, Pennsylvania, Minnesota, Nevada, and Florida.
And then on the CPG side, we got capital projects that have bled into this year from last year, but we've got a new facility in Virginia that will be operationalized.
If soda.
Our New York facility should turn on.
The tail end of this year.
We have additional new Jersey capacity coming online and then we also have a small expansion taking place in our Connecticut.
Okay.
The next question comes from Eric the lawyer with Craig Hallum Capital Group. Please go ahead.
Great. Thank you for taking my questions and congrats on the strong cost controls here in the quarter.
My question is on these cost controls so a normalized operating expenses that you guys called out decreased pretty materially both in absolute terms and as a percentage of sales.
You know quite impressive considering the growth of your growth of your asset base and of course, the inflationary environment as well.
Do you feel that we've reached kind of a new base level of Opex like should we think of any of these normalized.
Expense levels.
Possibly coming down further in.
In 'twenty three I know you've mentioned some efforts around increasing efficiency around CPG just wondering how you feel on this sort.
Sort of you know Q4 base level of normalized operating expenses. Thank you.
Sure. Thanks for the question Eric This is Matt I can take that.
So as a reference we saw normalized operating costs in the 21% to 22% range for the past two years and we expect that trend to continue.
But at the same time, we also plan to keep a close eye on our spend to balance short term profitability targets with long term strategic objectives.
So you know given given the fixed cost.
Base that you operate with number of retail locations are.
There's only so much of a floor you can you can hit but we feel pretty good about where we are at and how we can maintain that level.
Thank you.
Yeah.
The next question comes from sensor on it with Wolfe Research. Please go ahead.
Good afternoon, and thank you for taking the question it looks like sales trends in <unk> came in a bit ahead of expectations. So can you talk about what you're seeing quarter to date from a sales perspective, and then I guess, just taking a step back and thinking about the industry as a whole what is the catalyst here for pricing to stabilize and when do you think we could see some capacity exit.
The market here as they become increasingly capital constrained out there.
Thank you Spencer this is Matt I can start off there while we don't provide guidance, we know that seasonality is a factor.
We expect Q1 revenue to dip to the mid a dip from.
Q4 revenues by the mid single digits and <unk>.
Ben do you want to take the.
Sure It was.
Hey, Spencer its been on the capacity coming off pricing stabilizing I mean, you're starting to see it it depends on which market. It's obviously a bottom up decision and it starts with when the capital comes into the markets.
We're able to really hone in on where we're at how places like Massachusetts have experienced what they've experienced in what states. We're looking at where we're putting capital and see what other capital is out there.
But I think the days of money tumbling in which creates a lot more supply which is what really creates the price deflation in some of these markets is oversupply.
We look out in markets, where we're spending and where we have a lot of confidence given there's lack of a lot of new capital coming in people really digesting the tax penalties and interest rates are four or 500 book spreads are up so.
So the cost of capital is higher which gives us some confidence too early to call a bottom, but I would say we're studying the data and you know we're not more worried than we were so I think that's stabilizing.
Got it thank you.
Yeah.
The next question comes from Andrew <unk> with Stifel. Please go ahead.
Good evening, Thanks for taking my questions and congrats on the great cash generation this quarter.
I have a two part question and then a little bit of a follow on from the last question just thinking about working capital management and namely your inventory I'm. Just wondering if you can talk to your inventory levels and how do you feel about your turnover.
Do you see this as being a big source of cash in 2023.
And for the second part them more about the the.
Environment that you operate and do you see any risk.
That other companies might be monetizing their inventories.
And that could be a new source of price compression and if so.
Which markets do you think are most at risk I'm cognizant that you just mentioned that you're not really more worried than you were before about about pricing.
Yeah.
I'll take the first part of that Andrew.
So when we look at our inventory level, we feel pretty good about our inventory level, while inventory is up from last year, we still feel we're in a good a good position and between the mix of our CPG inventory retail inventory.
Monetizing that is no.
Not a significant.
In concern of ours, we continue to turn to inventory I think at a consistent pace and we expect to see that in the future.
And Andrew I'll take the second question just as it relates to you know whats happening kind of in the world around US route into two kind of inventory levels and could that kind of further push pricing down.
I mean look in 2022 we felt pretty good we felt it you know in Pennsylvania, Nevada and Massachusetts.
And in all three of those cases I think he was a situation where you just had supplies integrated band it built up over a period of time.
For this year.
It seems like it's stabilized so he's Nevada, Massachusetts, a little bit unclear I also think that there is some of the activity that we're seeing in Florida. I think is a driver of what you. Just described I think a lot of the price compression, we're seeing down there as you know there was a little bit of overbuilding and now there's kind of a recovery sizes fortune.
When we look across our portfolio.
Other places where it could pop up we have some positive catalyst coming right. So you're looking at places like Maryland.
And that's probably in a market, where you have elevated inventory levels, but with adult use coming that should hopefully absorb some of that some of that inventory, we certainly seen that happening in Connecticut as well as some of the other markets that have launched you.
You know over the last several years, so, but we're watching it close could that drive some further price compression I think so but fortunately for us it's limited to a few markets and not as widespread as you know if we were totally operational.
A number of the west coast markets.
Thanks for that I'll get back in the queue.
The next question comes from Aaron Grey with Alliance Global partners.
Go ahead.
Hi, Good evening and thank you for the question I'm curious could you provide some color about your current relative pricing and brand mix amid the continued pricing pressure on.
Some detail on how you look at managing price gaps going forward and whether that might differ between your premium and value brands are you comfortable with the share capture you're getting right now from and Sean I mean, the trade down with constrained wallet or potentially looking to make some adjustments. Thank you.
Yeah, I think Darrin, Hey, it's Ben I'll take it and we like where we're at we can improve its sort of a short answer and what I would say is we like rhythm is positioning our premium we think that room.
Great and continue with whether it's a reserve of various limited time offerings that youll see coming there on the high end and flower are we think we have some of the best flower in the game and we know we can continue to do better and we have a lot of things happening to drive that over say the next six to 18 months are the highest value partner. We're studying this all the time and then the biggest category like flower you mentioned, we'd love an shine if opportunity and good.
And then we continue to parlay into the next category. The next category, whether it's pre rolls Babe concentrates edibles and it's a very similar kind of analysis understanding where the consumer as you know we have unbelievable.
Unbelievable proprietary data to see exactly what's happening on a daily basis with the consumer and we use that to drive decisions on what the package type of seller what price.
So we're comfortable with where we are we think we've got more upside to go.
Okay, great. Thanks for the color.
Sure.
The next question comes from Michael Lavery with Piper Sandler. Please go ahead.
Thank you and good evening.
Cleared it's clear that the supply and demand has been driving the pricing moves.
Some of the oversupply you can see at least maybe a faint light at the end of the tunnel, but.
Daily.
You know a little more consistently driven by brand equity.
How far away is that from happening you've got some of the brands that stand out a little bit relative to others.
Maybe you've got a little better line of sight on what it takes for cause that's really carry more weight.
Sure. Thanks, Michael its bad I mean keep in mind. This industry is in its nascent stage right, where we're under a decade the idea of national marketing and National brands is really brand, new you're seeing rhythm flower or incredibles with sort of the best national distribution around maybe a handful of other names in the entire sector.
So.
We're able to see on a micro basis state by state able to take pricing power, which is really what our brand is through that trust and through that that platform to build that and we think it just continues to grow so I can't tell you three years, it's going to work, but we see over time, the ability where you know the national marketing the standards of the brand develops that relationship with the consumer that drives the price.
And then people are not just buying any old pre roll because they don't know what stuff is in it which is what we've seen out west and in other places.
And Don Walker, they know, it's not trim, they know what they're going to get and we continue to invest in that kind of basic promise with the consumer and I think if you look over time and be able to see that happen with some of the best brand and the key is for us is watching what others fail and why.
And it didn't work so well in.
Trying to improve from there.
I think more brand equity to be developed and more scale. A dollar spent on the brands that will show up in that.
We'll revisit over the next medium term.
Okay. That's great. Thank you.
Thank you.
The next question comes from Scott Fortune with Roth and Tan. Please go ahead.
Good afternoon, thanks for the questions real.
Real quick looking at consumer demand you mentioned, the 28% year volume lift can you.
Unpack that a little bit, especially from your side. What are you seeing is the pricing.
Impressive, helping penetrate our Elisa consumer shifts to the legal side, just provide more of a a little bit of color of that value demand side and consumer groups or did the graphics I really continue to drive that growth to offset that.
Are you seeing compression, we're seeing throughout the country.
Hey, Scott do you mind, just maybe synthesize that question a little bit you were a little muffled. So I just want to make sure we heard it right.
Yeah, just wanted to unpack that that volume with the B B S AIDS and call them out by 28% on a year do you think that's coming from a shift from the illicit side too to the legal side, new consumer just kind of unpack that the consumer side and the volume here.
Yeah.
Oh, that's a good yeah. That's a very good question I mean look I think the reality is it depends by market you know.
Sure I think that there is as prices continued to compress in a number of these markets.
You know when you put your.
When you think and act like a consumer why would you why would you buy untested unregulated product. If you can go to the store for the same price, it's something that at the very least it's tested by a third party lab within its a much more controlled environment. So I definitely think there's conversion from the.
From the legacy or unregulated market into the state licensed markets.
The other factor here is you know there's a whole host of other kind of macro economic factors that are showing up here.
And again it really is it's really driven by at least for our stores, where they are within the country and then what are the macroeconomic kind of impacts that are happening in the markets, where we're most prevalent calling you know, Pennsylvania, Illinois.
And some of the mid Atlantic States, So I think generally though.
Biggest driver is probably that kind of conversion to the legal market places at the same time I think there's also just more widespread acceptance I mean, my guess is everybody on this phone is heard the term candidates from their family members a lot more in the last three months than they ever did call. It in the previous 12 to 18 months. So.
There are new consumers, you know new patients continuing to enter our stores on a regular basis and that's obviously also driving some of the growth.
Thanks for the color appreciate it.
The next question comes from John Coffey with E. P. I G. Please go ahead.
Hey, guys. One question that pretty comprised that hadn't come up previously was Virginia expansion.
Some pretty pessimistic news out of the state over the last week.
Are there any kind of changes to the planned spending environment. There for you guys and then similarly.
Is there any kind of optimism that has come about in the last month or so out of other expansion states, mainly Pennsylvania and Minnesota.
Sure. John This is Anthony I'll take that one again look Virginia you know, we're all obviously aware of the news does not look like it don't you say, what you're going to go live in 2024, However, what I would tell you that yeah. The medical program continues to evolve. Its taken me continues to do a really nice job.
Opening up that program for the patients and simplifying the process.
Registration as well as access in general.
You know we do have an expansion there obviously if you don't use was coming we feel a lot better about it but at the end of the day. You know this is a phased expansion. So you know we built its success.
It's perhaps are you ready to increase the capacity for the existing medical market and then we've got two more stores, we plan to open there between now and the end of the year.
Other markets, Minnesota and Pennsylvania.
Minnesota is probably were further along than Pennsylvania.
We'll see how that evolves through the end of the Legislative session and then in Pennsylvania, you know that that's one we're watching closely I know that it's a lot of us really are and are involved with that but right now, it's probably a little bit murky to kind of opine on what direction, that's going to go with one.
Great. Thanks, Joe the only thing I would.
John the only thing I would chime in is very hard for us to make capital investments decisions based on the political landscape, where the political headlines. So when you take a year to build the supply chain is tricky so nothing about happening in Virginia really adjust our bullishness on the demand from the people from Virginia.
We think they're going to buy adult use which month, which ear is unclear same thing with New Yorker, Minnesota or P. E and we spent accordingly, because we understand that that demand from the consumers across the country that demand is coming true. The past is not straight headlines are are contrary to where that's going often but we're bullish on Virginia, we're bullish.
Sean Minnesota, our bullish on P. A we think a 24 to 36 months all three of those markets will be significantly bigger than they are today.
The next question comes from Matt Bottomley with Canaccord Genuity. Please go ahead.
Good evening, everyone. Just wanted to ask a question on on Nevada, specifically.
Given some of the headwinds in that market is there any other color you have on the dynamics of what's happening there or is it simply just price compression like everywhere else are there changes in sort of tourism habits and people that going out of Las Vegas, how many times, they're their purchasing or their frequency frequency of visit or potential basket size and then I was just a broader question are there other.
Other markets you think that when you look at your portfolio it might make sense to streamline them a little more theres been some press releases from some of your peers that have done that particularly on the west coast and I'm. Just curious as were in 2023 now. If you think you know paring back asset exposure or capex in some of your noncore markets might make sense in the current environment.
Great Matt I'll take the first one I mean look you know.
Out of market.
It had a tough year, but it was off 20% went from effectively $1 billion in 'twenty one day.
$800 in 'twenty two.
So you know for US you know we've seen a few things happened in that market price was one of the first places we saw severe kind of price erosion and it happened relatively quickly it's right off the heels of Covid you know.
And it came fast and furious.
There is kind of a few other things happening in that market, which are unique.
The tribes play a unique kind of role in that market that I think he's having a bigger impact than anyone really kind of understand at this point and then at the same time I wouldn't be surprised that there was a lot of product that continues to cross state lines from California into the state that is eroding kind of the you know the state license market.
In terms of the second question I don't know if anyone else.
Oh, Yeah sure Matt I can hit it in terms of exiting market as you know it's funny. It's a question that's really the answer to one of the prior questions about folks asking if.
No it wasn't going to take I think as you've seen people exit you you know like us people in the industry are out of money literally the cash is very tight it's not on our balance sheet, but its elsewhere. It so as you've seen people exit markets. There was a belief amongst those operators that are very tight because AD supply lease as people shut down at least the pricing stability in sort of a better market for those that can survive.
So we're in the midst of it we don't see Greenbelt waving anywhere we really like where we're at we built this portfolio with a calculated really precise surgical manner and we understand where we are the distribution channels that most consumers are it would be like sort of the upside embedded in this portfolio is driven all the decisions up until now although we're constantly evaluating it.
You know, we're not afraid to be wrong. So I liked your question. Thank you. Okay. Thanks, guys.
This concludes our question and answer session I would like to turn the conference back over to Ben <unk> for any closing remarks.
Thank you and thanks, everybody for joining us and look forward to updating you later this spring. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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