Q3 2023 Green Thumb Industries Inc Earnings Call
Ladies and gentlemen.
Green thumb call will begin shortly thank you for your patience.
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Yes.
Okay.
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Good afternoon, and welcome to Green thumb third quarter 2023 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 remarks.
During the question answer session, we would ask for a limit of one question per person.
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 Bank third quarter 2023 earnings call I'm here today, with founder and CEO of Banco Blur, President, Anthony Georgiadis, and Chief Financial Officer, Matt Faulkner.
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 Commission.
And Canadian Securities regulators, including the 2022.
<unk> 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 a bank or circumstances that may arise. After the date of this call throughout the discussion green thumb I'll refer to non-GAAP financial measures, including EBITDA and adjusted EBITDA.
A reconciliation of non-GAAP financial measures the most directly comparable GAAP measures.
Earnings press release, I can see and SEDAR filings. Please note all financial information is provided in U S dollars.
Otherwise indicated thanks, everyone and now here's Ben.
Yeah.
Thank you Shannon and good afternoon, everyone and thank you for joining our third quarter 2023 conference call.
Lead off with some quick observations on the industry and an overview of our results.
Anthony will discuss our operations and Matt will dive into the financials.
After that we will.
On the call to questions.
I'm pleased to report that our team delivered a great third quarter, we booked a record revenue of $275 million, a 9% increase quarter over quarter with a nice lift from adult use sales in Maryland.
Our GAAP net income was $11 million or five cents per basic and diluted share and adjusted EBITDA was 83 million or 30% of revenue.
Nine months cash flow from operations was $154 million and we ended the quarter with a strong balance sheet, including $137 million in cash net of our share buyback and tax payments.
Just today Gallup released a new poll, showing a record 70% of U S. Adults believe marijuana should be legal.
And with Ohio, legalizing yesterday more than 50% of the U S population lives in a state with adult use cannabis.
Yes, it remains a schedule one narcotic in the eyes of uncle Sam.
From a federal perspective, it is impossible to predict whether we will get regulatory change from safer banking rescheduling of candidates a potential garland memo or something else and if so what the timing might be.
We believe that eventually change will happen and green thumb is well positioned for that change.
Regardless of what happens, we'll continue to build our business by focusing on our long term strategy, creating.
Creating brands and products that resonate with the consumer remaining disciplined with our capital allocation and driving growth that generates cash flow.
Regarding the cannabis industry and the economy nothing has structurally changed since last quarter.
The industry set a new high watermark with sales of $7 4 billion in the quarter, which is a run rate of nearly $30 billion and a two 8% increase over last quarter we.
We feel good about our 9% growth versus industry of two 8% and especially given our historical capex spend we like the setup going forward.
<unk> is in a solid financial position, mainly due to our intense focus on capital allocation and being fiscally responsible with the dollars anthem.
Anthony will go into more detail on our Capex plans, but as I've said, we believe we are in the final stages of this capex cycle.
I'll use our recent success in Maryland as an example.
Positioning our company to benefit from adult use sales was two years in the making we needed to invest in expanding our cultivation and manufacturing capacity to meet the anticipated demand.
We plan to head to strategically locate our rise doors, where there's optimal access for medical patients and consumers.
Hagerstown in the northwest corner of the state job on your Baltimore and silver spring in Bethesda suburban communities in Washington D C.
[laughter].
We learned from the adult use slip in New Jersey last year as we prepared for a successful launch in Maryland, and we will build on our learnings from Maryland, as we gear up for upcoming adult use sales in Ohio.
Voted to legalize yesterday in Minnesota, coming soon and potentially other states like Pennsylvania, Virginia and Florida.
All of this long term planning was focused on driving one outcome organic growth, but generates cash flow.
And because we have been successful in executing this model.
We have sufficient cash flow to continue investing in the business and pay our heavy tax burden without taking on additional debt or diluting our shareholders with an equity raise.
Taking all this into consideration our board of directors authorized a share repurchase of up to $50 million and.
And we spent $25 million of it in September.
Going forward, we have the flexibility to use our cash reserves to repurchase more shares.
On debt refinancing.
Strategic M&A or investments in the business as opportunities present themselves.
Turning to our CPG business, we are steadfast in our mission to build brands that will be part of the American experience for decades to come.
And we're doing that by connecting people to cannabis in innovative ways. In early September we held the first ever music and legal cannabis consumption concert in Illinois with the Miracle in bundle line.
The event was truly a miracle the vibes, where hot everyone was happy relaxed and connected with the music and each other.
I want to thank everyone involved from our team members at our Rosmulder, one dispensary to the entire village a bundle helped ensure the event was equal parts bonding unsafe.
It's no surprise that cannabis and music had been associated together for a long time.
The elevate the positive connection between cannabis and music, we launched the rhythm artist series a line of celebrity musician strains that were developed with each artist and inspired by their lifestyle brand and preferences.
This series is about honoring the authentic relationships with artists have wouldn't candidates, while bringing fans closer to their favorite artists by actually smoking the same strains as they do.
While we are excited about this innovative way to enhance the resident experience. The artists are even more excited Mitchell sense any state Champs Marcus King and tenacity our.
Limiting their artistic sensors and candidate preferences to craft unique strains that will resonate with their fan bases.
Okay.
I also want to welcome two new board members to the board of Directors, Richard Ryzen and Hana Ross Richardson has joined the audit Committee and Hana has joined both the audit and compensation committees of the board.
I look forward to the contributions both Richard and Hana will bring to the table as we continued to strengthen our board.
Finally.
The World of war is creating a great deal of fear uncertainty and anxiety, we are surrounded by heartbreaking coverage of the Israel Hamas War. The continued conflict in Ukraine and other tragedies across the globe.
Our hearts are with the innocent people, who are suffering as a result, and we hope and pray for peaceful resolutions.
And he's dark and overwhelming times I've never been more confident in our mission and the power of cannabis to ease pain, calming xiety and promote positivity and wellbeing.
Now I'll turn the call over to Anthony to add his thoughts on the quarter Anthony.
Thanks, Dan Good afternoon, everyone. Thanks for joining us.
As you just heard the company posted a robust third quarter to.
To summarize $275 million of revenue.
$83 million and adjusted EBITDA.
25 million stock repurchase.
Our favorite $61 million in operating cash flow.
We couldn't be more proud of the team for their hard work and execution, especially in Maryland, where substantial preparation and planning allowed us to have a seamless transition into adult use.
Throughout the quarter. We also saw a wholesale brand performance continued to strengthen in a number of green thumb markets.
These share gains by rhythm dog walkers Incredibles as reported by Bds highlight our team's continued focus on improving flower quality and increasing stocking levels in our top performing goods.
Just this week in Illinois, our team was recognized with 10 awards at the high Times Cannabis Cup, including four Flower awards for our rhythm Jhatka rare rhythm swaps rhythm Black Afghan my personal favorite a rhythm animal face.
On the animal front, our recent collaboration with Magnolia bakery highlights the broad reach of our Incredibles brand along with reinforcing its reputation as the credible edible.
It's exciting for our team to received these recognitions given our dedicated focus on the consumer.
In Q3, we invested 54 million across our CPG and retail fleet, bringing our year to date capital spend to $184 million.
We anticipate spending approximately $50 million in the fourth quarter, bringing total 2023 capex spend to approximately $230 million.
During the quarter. In addition to various CPG facility investments, we opened two new stores, one off Craig wrote in Nevada, and the other in fruit One Park, Florida.
And a bit of recent news, we wanted to give him a shout out to the Buckeye state, which candidly passed them or don't you still yesterday.
Big banks to everyone involved to help support the effort.
We're hopeful the legislators now follow the will of the people and allow the personal freedoms people voted for.
Yesterday.
As a reminder, we are well positioned to stay with our retail footprint and our state of the yard Toledo based cultivation and processing facility.
As we get closer to 2024, while we were allocating meaningful resources towards candidate Legislative change, we intend to continue to operate our business, assuming no tax relief, nor incremental capital market accessibility.
As such we anticipate this year seems if cash flow generation and balance sheet stability to continue into the new year.
Slash in advance of this weekend, we wanted to acknowledge the veteran community.
And thank them for all their sacrifice.
We look forward to the day that we can legally share a dog Walker as easy if they cannot Budweiser.
We hope everyone has a safe holiday season with their loved ones and look forward to speaking with you in late February.
With that I'll turn the call over to back to review our financial results.
Thanks, Anthony and good afternoon, everyone.
We generated over 275 million revenue in the third quarter of 2023.
5% increase compared to the prior year and a 9% sequential increase.
While the effect of price compression continues to pressure the top line revenue during the quarter benefited from the legalization of adult use sales in Maryland.
Continued unit growth as well as revenue generated from eight new stores opened during the year also contributed to the increase in revenue.
Overall retail revenue increased 3% versus the third quarter of 2022.
Third quarter comparable sales were up slightly compared to the third quarter last year on a base of 77 stores.
Consumer packaged goods gross revenue increased 18% versus the prior year quarter.
Looking forward, we expect to see fourth quarter sequential revenue to be down low single digits much like we saw in the fourth quarter last year.
Gross profit for the third quarter was $133 8 million or 48, 6% of revenue compared to $131 2 million or 52% of revenue for the third quarter last year.
The decline in gross margin was primarily driven by price compression.
Turning to Opex, selling general and administrative expense for the third quarter was $84 8 million or 38% of revenue compared to $82 5 million or 31, 6% of revenue last year.
SG&A, excluding depreciation amortization, and one time transaction costs and stock based comp, which we referred to as normalized operating costs approximated $59 million compared to $57 million in Q2 and $53 million in the third quarter of 2022.
The sequential increase in total expenses, primarily reflected costs associated with opening new stores and supporting adult use launch.
We continue to carefully manage our costs in this inflationary environment.
The company generated net income of $10 5 million or <unk> <unk> per basic and diluted share during the quarter.
This compares to net income of $9 8 million or four cents per basic and diluted share reported last year.
Adjusted EBITDA, which excludes noncash stock based compensation and other non operating costs was $83 million or 30% of revenue for the quarter as compared to $84 5 million or 32% of revenue for the third quarter last year.
We ended the third quarter is the strong balance sheet, including cash of $137 million and working capital of $170 million, while staying current with more than 28 million tax payments during the quarter and $80 million year to date, along with the repurchase of 25 million shares during the quarter.
Cash flow from operations came in at $154 million for the nine months this year compared to 88 million last year. It was $61 million generated during the current quarter.
In summary, we're pleased with our third quarter performance and execution with this within this current market environment.
We will continue to focus on execution and our stated goals.
Thank you for your support and confidence and we look forward to updating you next quarter.
With that I will open the call to your questions operator.
We will now begin the question and answer session.
To ask a 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.
Is it any time your question has been addressed and you would like to withdraw your question. Please press Star then two.
We would ask for a limit of one question per person.
At this time, we will pause momentarily to assemble our roster.
Yeah.
The first question today comes from Matt Mcginley with Needham. Please go ahead.
Thank you.
On the gross margin side, you noted the price compression was the primary driver of that decline in rate.
The capex spend over the last few years, it's been mostly in the production facilities and I think and probably some of your some of your older facilities, you probably arent fully utilizing that capacity as wholesale opportunity shrank and then some of the newer facilities you probably aren't fully utilizing them because the markets have been opened up yet another DNA your Cogs, probably increased a little over time, but I guess my question is has your.
Cost per unit gotten worse over time from that capacity it's underutilized.
And if not why would that not be the case.
Yeah, Matt.
This is Anthony that's a really good question.
Look the reality is.
We have a bit of what you just described happening within the portfolio.
Right. So when you think about some of the states, where we have greater capacity than needed.
Well I'll take the Ohio for one you know that's a that's a place where we have a well in fact when planting less right now than we that we plan to call. It a year ago, obviously that will change with adult use but certainly that facility is not operating at optimum.
Efficiency.
And then in addition to that we have a number of facilities that we just turned on call it in Minnesota, Virginia.
We have expanded facility in New Jersey, the new facility in New York, where those are just getting ramped up. So generally speaking, yes, we're running a little bit more cost to the P&L from a facility standpoint.
Due to having some new facilities that we brought online as well as having some older legacy ones that are not operating at full capacity.
The next question comes from Eric Dey lawyer, right Craig Hallum Capital Group. Please go ahead.
Great. Thanks for taking my questions and congrats again on another strong quarter here.
So it looks like Florida retail expansion significantly picking up here I guess just a few questions. There are these circle K stores if.
If you can comment on sort of the status of that.
That partnership as it relates to regulators and then just any comments on it.
Production expansion or Capex for Florida going forward. Thank you.
Sure Eric Evans here I'll answer that again as well.
So the stores that we've opened this year have been Standalone RY stores. Those are the same stores that we've been operating since we became operational in a state a few years back.
Working with the.
With the department of health on Operationalized in the stores that are adjacent to circle case I Hope you have an update there soon but nothing tangible just yet.
And look on the on the facility side, where the Capex spend was really front end loaded.
So for those that have operated in Florida for a while.
You know really the best way to approach is below the wholesale capacity in advance of the retail. So you can actually feed the stores and scale them up over time. So that's exactly what we what we've been doing we finished the yard to spend call. It late last year into this year, we've been ramping up the facility you know Rover, who are retail site expansion.
And have a lot of good things in store for 2004.
Thank you.
The next question comes from Aaron Grey with Alliance Global Partners. Please go ahead.
Hi, Thanks for the question and congrats on the corner. So can you speak to some of the learnings that you've had in terms of setting up our conversion in the adult use market that you mentioned with strong conversion and you guys had in Maryland, you guys or a market leader in the legacy, Maryland market. You also one of the market leaders, and Minnesota, and Ohio, which would be <unk>.
<unk> as well as the potential converting market in Pennsylvania. So do you feel like this is a distinct advantage in using kind of capitalizing on the conversion or are there. Other factors that you believe contributed to it you know any color you can provide without giving away maybe some secret sauce it'd be appreciate in terms of that sequential comparison with Maryland.
Sure, Yeah, and Anthony here.
Yeah look the reality is our number one you've got to learn from your mistakes I would say the job we've learned a lot in new Jersey.
A number of things of what not to do.
And the reality is there's not a it's not a silver bullet there was no real secret sauce.
It's really just making sure you've got a great team because it's it's a lot of heavy lift.
Number one to product quality is key you know one of the things that we did early on when we knew Maryland was going adult use.
We focused on improving the rhythm flower quality, so that once we hit the adult use market. We can really hit the ground running generally flowers the tip of the sphere. So you know, but it's it's really just making sure that we're fully staffed up our sites are ready to handle the additional volume and really just continuing to learn from our mistakes and evolve as a business.
Yeah.
Great. Thanks for the color.
Thanks Sharon.
The next question comes from Scott Fortune with Roth MK and please go ahead.
Yes, good afternoon, and thanks for the questions.
Focus will be on the wholesale side and you see some new stores, the social equity stores coming on board in Illinois, and New Jersey.
How are you how is that growth coming from that on the wholesale side.
Seeing kind of that starting to cannibalize a little bit on the retail sales as we see more of this these tourists come on board in the states you kind of hear your strategy at wholesale versus retail on these days.
These states are picking up on the retail side.
Yeah, Scott Anthony I'll take that question as well.
If you. If your question is specific to New Jersey, Yes, what we've seen is there's additional stores have opened up in the state there's been erosion on our retail business and increased demand on the wholesale side.
That's the that's currently what's happening in New Jersey right now the reality is that you know.
You can't paint all of these markets with the same brush so.
Well that may be going on in new Jersey, it could be a different kind of supply demand situation in other markets, but you know what we've seen in new Jersey at the stores have opened up.
At a nice pace over the last call.
Two quarters.
And yeah, we feel pretty good about the fact that we've got additional wholesale capacity coming with Abbott style.
Candidly I wish we had the capacity sooner, but it's setting up to work out pretty well now is all these stores really opening up.
So as we kind of look ahead, we think there's probably greater growth in the wholesale side and retail side for Lisa Greenbaum.
Thank you.
The next question comes from Gerald Pascarelli with Wedbush. Please go ahead.
Great. Thank you very much for taking the question.
Macro related question on the resumption of student loan repayments they resumed.
Last month I'm, just curious on how you're thinking about a potential impact from that I'm speaking of the industry just in terms of.
Unit sales or potential down trading any color you can provide them.
On that.
Your thoughts on the student loan repayments will be great. Thank you very much.
Sure Hey, Jeremy it's Ben.
We candidly haven't spent a lot of calories and time on that we're focused pretty bottom up on what's happening in the box and appealing to consumers you know, there's more money coming into the consumer's pockets through relief of prior debt or whether it was tax repayments, we saw that hit pretty fast and that was a big thing coming out of COVID-19 or other sorts of bonuses.
Bonuses to the consumer.
We're watching what's happening on the ground every day bottom up to make decisions on pricing and sort of value orientation and different sorts of deals to drive the best unit economics, we can but haven't.
Our Super focused on the student loan we're seeing a lot more unit growth, obviously, and then given the pricing, but it's a by state.
By sort of product discussion for us versus a macro one market business for now.
Got it thanks, Thanks Pam.
Uh huh.
The next question comes from Matt Bottomley with Canaccord Genuity. Please go ahead.
Good evening and congrats on the great printing and a question for me just on the onset here is just on Maryland, specifically you know you called it out in your prepared remarks and in the press release you.
You had a peer this morning, our reported earnings and gave some granularity on on a sort of state by state metrics I'm. Just wondering I think they quoted having about a 7% market share and in Maryland, and it looks like from what I've seen.
In the branded sales data, which I know is on a sample base you guys are probably to ask that so are you comfortable on providing any sort of commentary on where you're standing us in Maryland, I know, it's about a $1 billion market.
Right out of the gate.
The July one implementation I'm, just wondering could you have a 15% ish market share there or if you're not willing to get into the numbers. Just you know any any any sort of directional commentary on how that market has been going so far.
Yeah, Thanks, Matt Hey, it's been.
I can take this won't give Anthony some relief continues as I know the numbers, a little not as well as Anthony so.
We're very bullish on Maryland, great start lot of transparency from the state.
See a lot of growth ahead, and we're really focused on the quality of our products. So I can't tell you mentioned rhythm flower dog walkers Incredibles things are doing very well there.
And we continue to be able to increase output and drive some efficiencies X, we're not going to comment on a state by state individuals' data, but we remain optimistic on what's going on in Maryland. The team there continues to really kill it they're grinding it out and it's showing up and.
And we can take that playbook, and we know what consumers want and that we can continue to deliver on that across the country. Because that's what we've been focused it's really the same script over and over for us in order to drive those gains so.
Just yesterday, Ohio and in time, we see that September seven 2024.
Martin on my calendar and we're ready for it and we're going to go at it again.
So thanks I appreciate the question Matt.
Okay, and then just on Ohio, specifically Hudson calls today sort of going around and obviously a.
A lot of bullish sentiment on on the positive vote from from last night, but it seems like there's some cautious optimism.
With respect to maybe what the governor might say or just sort of the state politicians with respect to potentially challenging it so it isn't ohio, a bit of a a bit of a.
Is there some nuance to exactly what we're waiting to see before we actually expect maybe nine months out and implementation are waiting to get official commentary from the governor from.
The legislators on that just given the fact that it's something that you know although polling was very positive in advance of actually going through yesterday. It seems like the local politicians there have not been shy about speaking against it.
Yeah, it's hard to comment there's been again, thanks, it's hard to kind of politicians can say whatever they want the will of the people is pretty clear at 57% in Ohio is about 70% across the country and all the polling in Ohio. It makes it very clear. This is what the people want and Theres a lot of political posturing, we're focused on hiring people, creating a great economy and they're taking away.
Hey, unsafe product that's on the street or frankly, a lot of people driving over to Michigan to bring the product back to Ohio, though it should be Ohio jobs, Ohio tax dollars.
So we're ready to play our part in this and we're focused on the win but there's a lot of details to be worked out it's not a constitutional amendment, we put a lot of facts out there both on our social media and otherwise to give you the lay of the land of what's happening.
We're comfortable with what's going on and we're excited about so we don't we're excited about the job creation in Ohio as a result of this program.
Question.
Okay got it thanks Ben.
Thanks, Matt.
This concludes our question and answer session I would like to turn the conference back over to Ben Copay, Chairman and CEO for any closing remarks.
Thanks, Betsy thanks, everybody for joining us have a happy and safe holiday season, and talk to you soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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