Q2 2024 The Cannabist Co Holdings Inc Earnings Call

August 8, 2024

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Speaker Change: Good day and thank you for standing by. Welcome to The Cannabis Company Q2 2024 Earnings Call.

Operator: At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lee Evans, Senior Vice President, Capital Markets. Please go ahead.

Speaker Change: At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.

Speaker Change: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lee Evans, Senior Vice President, Capital Markets. Please go ahead.

Lee Evans: Good morning, and thank you for joining The Cannabis Company's second quarter 2024 Earnings Conference call. With me today are our Chief Executive Officer, David Hart, President Jesse Channon, and our Chief Financial Officer, Derek Watson.

Lee Evans: Thank you. Good morning, and thank you for joining The Cannabis Company's second quarter 2024 earnings conference call.

Speaker Change: With me today are our Chief Executive Officer, David Hart, President Jesse Channon, and our Chief Financial Officer, Derek Watson.

Lee Evans: Earlier this morning, we issued a press release reporting our second quarter 2024 results. A copy of this release is available on the investors section of our corporate website, where you will also be able to access a replay of this call for up to 30 days. Certain remarks we make today regarding future expectations, plans, and prospects for the company constitute forward-looking statements within the meaning of applicable Canadian and U.S. securities laws. However, actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, which we disclose in more detail in the risk factors section of our annual Form 10-K for the year ended December 31, 2023, which has been filed with the applicable regulatory authority.

Speaker Change: Earlier this morning, we issued a press release reporting our second quarter 2024 results. A copy of this release is available on the Investors section of our corporate website, where you will also be able to access a replay of this call for up to 30 days.

Speaker Change: Certain remarks we make today regarding future expectations, plans and prospects for the company constitute forward-looking statements within the meaning of applicable Canadian and U.S. securities laws.

Speaker Change: Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, which we disclose in more detail in the Risk Factors section of our annual Form 10-K for the year ended December 31, 2023, which has been filed with the applicable regulatory authorities.

Lee Evans: Any forward-looking statements represent our views as of today and should not be relied upon as representing our views as of any subsequent date. While we may update any such forward-looking statements in the future, we specifically disclaim any obligation to do so, except as otherwise required by applicable law. Also, please note that on today's call, we will refer to certain non-GAAP financial measures, such as EBITDA and adjusted EBITDA. These measures do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. However, the company considers certain non-GAAP measures to be meaningful indicators of the performance of its business in addition to, but not as a substitute for, our GAAP results.

Speaker Change: Any forward-looking statements represent our views as of today and should not be relied upon as representing our views as of any subsequent date. While we may update any such forward-looking statements in the future, we specifically disclaim any obligation to do so, except as otherwise required by applicable law.

Speaker Change: Also, please note that on today's call, we will refer to certain non-GAAP financial measures such as EBITDA and Adjusted EBITDA. These measures do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies.

Speaker Change: The Cannabist Company considers certain non-GAAP measures to be meaningful indicators of the performance of its business in addition to, but not as a substitute for, our GAAP results.

Lee Evans: A reconciliation of such non-GAAP financial measures to their nearest comparable GAAP measure is included in our press release issued earlier today. With that, I will turn the call over to David Hart to get us started. David?

Speaker Change: A reconciliation of such non-GAAP financial measures to their nearest comparable GAAP measure is included in our press release issued earlier today.

David Hart: Thank you, Lee, and thank you to everyone who has joined us on the call today. On the two previous earnings calls since Jesse and I were appointed to lead The Cannabist Company in mid-January, you have heard us clearly outline our objectives and the actions that we're taking to build a better business, create a sustainable economic model, and to drive value for all of our stakeholders over time. We've made very clear that this company will look materially different by the end of 2024, and we have been running fast at the opportunities to make that happen.

Speaker Change: With that, I will turn the call over to David Hart to get us started. David?

Unknown Executive: On the two previous earnings calls since Jesse and I were appointed to lead The Cannabist Company in mid-January, you have heard us clearly outline our objectives and the actions we are taking to build a better business, create a sustainable economic model, and to drive value for all of our stakeholders over time. We implemented an additional corporate restructuring in Q2, both labor and non-labor, that would generate $10 million in cost savings on an annual basis.

David Hart: Thank you, Lee, and thank you to everyone who has joined us on the call today. On the two previous earning calls since Jesse and I were appointed to lead The Cannabist Company in mid-January, you have heard us clearly outline our objectives and the actions that we are taking to build a better business, to create a sustainable economic model, and to drive value for all of our stakeholders over time.

Speaker Change: We've made very clear that this company will look materially different by the end of 2024. And we have been running fast at the opportunities to make that happen.

David Hart: More specifically, in 2024, we are fixated on driving increased profitability, rationalizing our geographic footprint and corporate expense profile, and proactively implementing all of the changes required to strengthen our balance sheet, adequately meet our debt obligations, and set the company up for sustained growth and profitability in 2025. To achieve these objectives, we've had to rapidly identify where opportunities lie and move progressively to capture them. To that end, in the first half of 2024, we have taken a number of critical steps, paid $13.2 million to satisfy our May 2024 debt maturity, following on a convertible debt financing completed in. We implemented an additional corporate restructuring in Q2, both labor and non-labor, that would generate $10 million in cost savings on an annual basis.

Speaker Change: More specifically, in 2024, we are fixated on driving increased profitability, rationalizing our geographic footprint and corporate expense profile, and proactively implementing all of the changes required to strengthen our balance sheet, adequately meet our debt obligations, and set the company up for sustained growth and profitability in 2025 and beyond.

Speaker Change: To achieve these objectives, we've had to rapidly identify where opportunities lie and move progressively to capture them. To that end, in the first half of 2024, we have taken a number of critical steps.

Speaker Change: Paid $13.2 million to satisfy our May 2024 debt maturity, following on a convertible debt financing completed in March.

Speaker Change: We implemented an additional corporate restructuring in Q2, both labor and non-labor, that would generate $10 million in cost savings on an annual basis.

David Hart: We structured our regional operational leadership to align retail and wholesale commercialization opportunities. We initiated divestitures of non-core and underperforming assets, most notably Florida, which is expected to reduce loss-making operations and increase efficiency. We restructured our wholesale operation and go-to-market strategy with a shift towards finished goods and a higher mix of brand new partner products, which has helped to reduce underutilized capacity in our cultivation and manufacturing portfolio. By any measure, the work that has been accomplished in the first six months of 2024 by the entire Cannabis Company team has been transformative.

Speaker Change: We structured our regional operational leadership to align retail and wholesale commercialization opportunities.

Speaker Change: We initiated divestitures of non-core and underperforming assets, most notably Florida, which is expected to reduce loss-making operations and increase efficiency.

Unknown Executive: We restructured our wholesale operation and go-to-market strategy with a shift towards finished goods and a higher mix of brand new partner products, which has helped to reduce underutilized capacity in our cultivation and manufacturing portfolio. We expect both the Arizona and Virginia transactions to close in the coming weeks. While we are rationalizing our geographic footprint and aligning corporate costs with a smaller operational portfolio, we are simultaneously positioning ourselves to win in our best market.

Speaker Change: We restructure our wholesale operation and go-to-market strategy with a shift towards finished goods and a higher mix of branded partner products, which has helped to reduce underutilized capacity in our cultivation and manufacturing portfolio.

Speaker Change: By any measure, the work that has been accomplished in the first six months of 2024 by the entire Cannabis Company team has been transformative.

David Hart: As we announced in June, we are exiting the state of Florida, where we have 14 dispensaries and three cultivation and manufacturing plants. As we disclosed when we announced the exit, Florida represented less than 5% of total revenue in Q1, which remained true in the second quarter. Given the imbalance of our operations in Florida, the market was also loss-making.

Speaker Change: As we announced in June , we are exiting the state of Florida, where we have 14 dispensaries and three cultivation and manufacturing facilities.

Speaker Change: As we disclosed when we announced the exit, Florida represented less than 5% of total revenue in Q1, which remained true in the second quarter.

David Hart: With a loss of approximately $10 million in adjusted EBITDA expected in 2024, Florida was a priority on our list for rationalization. To date, we have made great progress on the Florida divestitures and look forward to signing definitive agreements and sharing additional details in the near future. As part of the rationalization initiative underway, we've also closed two medical dispensaries in New York but continue to operate the Riverhead New York Cultivation and Manufacturing Facility, retaining the optionality of an improved wholesale market in New York, which is starting to show some signs of life. Jesse will add more detail in a moment.

Speaker Change: In the imbalance of our operations in Florida, the market was also loss-making.

Speaker Change: With a loss of approximately $10 million in adjusted legal debt expected in 2024, Florida was a priority on our list for rationalization. To date, we have made great progress on the Florida divestitures and look forward to signing definitive agreements and sharing additional details in the near future.

Speaker Change: As part of the rationalization initiative underway, we've also closed two medical dispensaries in New York, but continue to operate the Riverhead New York Cultivation and Manufacturing Facility, retaining the optionality of an improved wholesale market in New York, which is starting to show some signs of life. Jesse will add more detail in a moment.

David Hart: As we announced just last week, we are selling our operations in Arizona, as well as one of our two licenses and affiliated operations in Virginia, to multi-state operator Burano. This is a win-win transaction. For The Cannabis Company, we are receiving total consideration of approximately $105 million, which strengthens our balance sheet and has already provided a boost to liquidity, a positive step towards de-risking the balance sheet so that we can focus on operations.

Jesse Channon: As we announced just last week, we are selling our operations in Arizona, as well as one of our two licenses and affiliated operations in Virginia to multi-state operator Brano. This is a win-win transaction.

Jesse Channon: For The Cannabis Company, we are receiving total consideration of approximately $105 million, which strengthens our balance sheet and has already provided a boost to liquidity, a positive step towards de-risking the balance sheet so that we can focus on operations.

Speaker Change: We expect both the Arizona and Virginia transactions to close in the coming weeks.

Speaker Change: While we have successfully implemented major structural changes in a very short period of time, we are not anywhere near done. We continue to evaluate underperforming assets. For example, we're in the process of exiting Washington, DC and are completing our analysis of other locations in the portfolio.

David Hart: For example, we're in the process of exiting Washington, D.C., and are completing our analysis of other locations in the portfolio. While we are rationalizing our geographic footprint and aligning corporate costs with a smaller operational portfolio, we are simultaneously positioning ourselves to win in our best market. Ohio has just converted to adult use, and we are perfectly positioned with a Tier 1 license, a full canopy, and five stores, primed and ready with the right inventory and additional locations under development.

Speaker Change: While we are rationalizing our geographic footprint and aligning corporate costs with a smaller operational portfolio, we are simultaneously positioning ourselves to win in our best markets.

Unknown Executive: Ohio has just converted to adult use, and we are perfectly positioned with a Tier 1 license, a full canopy, and five stores, primed and ready with the right inventory and additional locations under development. We have identified a location for our sixth dispensary, which is an exciting next step after the launch of adult use on August 6th. Notably, we saw a strong sequential increase in revenue in Ohio in Q2, an indicator of the excellent momentum we have in that market, thanks to our growing wholesale market. With that, I will now turn the call over to Derek to discuss our financial results. Derek

Speaker Change: Ohio is just converted for adult use and we are perfectly positioned with a Tier 1 license, full canopy, and five stores primed and ready with the right inventory and additional locations under development.

David Hart: We have identified a location for our sixth dispensary, which is an exciting next step after the launch of adult use on August 6th. Notably, we saw a strong sequential increase in revenue in Ohio in Q2, an indicator of the excellent momentum we have in that market, thanks to our growing wholesale market. We've increased capacity in New Jersey and expect to have another dissensory open around the end of the year, which will bring us to the state maximum of three.

Speaker Change: We have identified a location for our sixth dispensary, which is an exciting next step after the launch of adult use on August 6th. Notably, we saw a strong sequential increase in revenue in Ohio in Q2, an indicator of the excellent momentum we have in the market thanks to our growing wholesale program.

Speaker Change: We have increased capacity in New Jersey and expect to have another dispensary open around the end of the year, which will bring us to the state maximum of three. We're also very excited about the pending transition to adult use in both Delaware and Virginia. Two of the markets where we remain very well positioned.

David Hart: We're also very excited about the pending transition to adult use in both Delaware and Virginia, two of the markets where we remain very well. In summary, our team is proactively attacking what has challenged our company in the past. We are simplifying our business, rationalizing our footprint, investing in the best markets and systems, implementing material changes in our wholesale and retail operations, improving margins, strengthening our balance sheet, and, to put it simply, building a better business. We look forward to keeping you apprised of our continued progress. With that, I will now turn the call over to Derek to discuss our financial results. Derek

Speaker Change: In summary, our team is proactively attacking what has challenged our company in the past.

Speaker Change: We are simplifying our business, rationalizing our footprint, investing in the best markets and systems, implementing material changes in our wholesale and retail operations, improving margins, strengthening our balance sheet, and to put it simply, building a better business. We look forward to keeping you apprised of our continued progress.

Derek Watson: Thank you, David, and good morning, everyone. I'll provide a summary of the key financial results for the second quarter, discuss trends in our markets, and comment on our continuing initiatives to strengthen the company. For the second quarter, we achieved $125.2 million in revenue, up 2% from the first quarter. We had a slight decline in gross margin, largely attributable to discounting around the 420 holiday and also due to the increasing revenue mix from our lower margin wholesale business.

Speaker Change: With that, I will now turn the call over to Derek to discuss our financial results. Derek?

Derek Watson: Wholesale revenue increased 24% over the first quarter and now represents 15% of total revenue, up from 12.5% in Q1. Wholesale continues to demonstrate better gross margin discipline, with a 300 basis point improvement over the first quarter.

Derek Watson: I'll provide a summary of the key financial results for the second quarter, discuss trends in our markets, and comment on our continuing initiatives to strengthen the company. As we've previously described, we continue to experience an overhang from the unabsorbed overhead in underutilized production facilities, which remain flat compared to Q1 and represented a 4.2 percentage point impact on gross margin. This has already come down from the five percentage point impact experienced during 2023, and we anticipate further improvement as we turn on additional capacity in markets such as Ohio and New Jersey.

Derek Watson: Thank you, David, and good morning, everyone.

Derek Watson: I'll provide a summary of the key financial results for the second quarter, discuss trends in our markets, and comment on our continuing initiatives to strengthen the company.

Derek Watson: For the second quarter, we achieved $125.2 million in revenue, up 2% from the first quarter.

Derek Watson: We had a slight decline in gross margin, largely attributable to discounting around the 4.20 holiday, and also due to the increasing revenue mix from our lower margin wholesale business.

Derek Watson: Wholesale revenue increased 24% over the first quarter and now represents 15% of total revenue, up from 12.5% in Q1.

Derek Watson: AllFail continues to demonstrate better gross margin discipline with a 300 basis point improvement over the first quarter.

Derek Watson: Adjusted gross profit in the first quarter was $48.2 million, up slightly over the prior quarter and down year-over-year. The adjusted gross margin of 38.5% in Q2 was down slightly compared to the 39.1% in the first quarter. As we've previously described, we continue to experience an overhang from the unabsorbed overhead in underutilized production facilities, which remain flat compared to Q1 and represented a 4.2 percentage point impact on gross margin.

Derek Watson: Adjusted gross profit in the first quarter was $48.2 million, up slightly over the prior quarter and down year over year.

Derek Watson: The adjusted gross margin of 38.5% in Q2 was down slightly compared to the 39.1% in the first quarter.

Derek Watson: As we've previously described, we continue to experience an overhang from the unabsorbed overhead in underutilized production facilities, which remained flat compared to Q1 and represented a 4.2 percentage point impact on gross margin.

Derek Watson: This has already come down from the five percentage point impact experienced during 2023, and we anticipate further improvement as we turn on additional capacity in markets such as Ohio and New Jersey. In mid-June, we announced the incremental corporate restructuring, targeting a further $10 million in annualized cost savings. Due to the timing, this had only a limited impact on our Q2 results, but will be seen more fully starting in Q3.

Derek Watson: In mid-June, we announced the incremental corporate restructuring, targeting a further $10 million in annualized cost data. Cash from operations was negative $3 million, an improvement over the first quarter's negative $6.2 million, and included some upfront costs associated with our restructuring. We continue to expect CapEx over the longer term at an average of around $2 to $3 million per quarter, primarily supporting new store openings and enhancements to our manufacturing capability. We have more retail locations in development, one in New Jersey, one in Maryland, one in Virginia, and now three in Ohio post-conversion to adult use in order to reach our maximum license caps in each of these states. To this end, we recently announced the pending divestitures in Florida, Arizona, and Virginia. Our key financial priorities remain driving improvement in margin, EBITDA, and cash flow while proactively managing our balance.

Derek Watson: In mid-June, we announced the incremental corporate restructuring targeting a further $10 million in annualized cost savings.

Derek Watson: Due to the timing, this had only limited impact on our Q2 results, but will be seen more fully starting in Q3.

Derek Watson: Adjusted EBITDA in Q2 was $17.5 million, an increase from the $15.3 million in Q1, with the adjusted EBITDA margin improving to 14% compared to 12.5% in the first quarter. Cash from operations was negative $3 million, an improvement over the first quarter's negative $6.2 million, and included some upfront costs associated with our restructuring. CapEx in the quarter was $1.7 million, with one new retail location in Richmond, Virginia having over... We continue to expect CapEx over the longer term at an average of around $2 to $3 million per quarter, primarily supporting new store openings and enhancements to our manufacturing capability.

Derek Watson: Adjusted EBITDA in Q2 was $17.5 million, an increase from the $15.3 million in Q1, with adjusted EBITDA margin improving to 14% compared to 12.5% in the first quarter.

Derek Watson: Cash from operations was negative $3 million, an improvement over the first quarter's negative $6.2 million, and included some upfront costs associated with our restructuring.

Derek Watson: CapEx in the quarter was $1.7 million, with one new retail location in Richmond, Virginia having opened.

Derek Watson: We continue to expect CapEx over the longer term at an average of around $2-3 million per quarter, primarily supporting new store openings and enhancements to our manufacturing capabilities.

Derek Watson: We had 82 active retail locations at the end of the second quarter, with one store opening in Virginia and closures in New York, Colorado, and Washington, D.C. We have more retail locations in development, one in New Jersey, one in Maryland, one in Virginia, and now three in Ohio post-conversion to adult use in order to reach our maximum license caps in each of these states. We ended the second quarter with $22 million of cash on hand.

Derek Watson: We had 82 active retail locations at the end of the second quarter, with the one-store opening in Virginia and closures in New York, Colorado, and Washington, D.C.

Derek Watson: We have more retail locations in development, one in New Jersey, one in Maryland, one in Virginia, and now three in Ohio post-conversion to adult use in order to reach our maximum license caps in each of these states.

Jesse Channon: During the quarter, we paid off the remaining $13.2 million of our 13% senior notes that matured in May using net proceeds of $14.8 million from the private placement of 2027 convertible notes that closed during Q1. We continue to target initiatives to improve cash flow, further de-lever the balance sheet, and reduce interest expense. To this end, we recently announced the pending divestitures in Florida, Arizona, and Virginia to support operating cash loan improvements.

Derek Watson: We ended the second quarter with $22 million of cash on hand. During the quarter, we paid off the remaining $13.2 million of our 13% senior notes that matured in May, using net proceeds of $14.8 million from the private placement of 2027 convertible notes that closed during Q1.

Derek Watson: We continue to target initiatives to improve cash flow, further de-lever the balance sheet, and reduce interest expense.

Derek Watson: To this end, we recently announced the pending divestitures in Florida, Arizona, and Virginia.

Jesse Channon: We've also reduced operations in New York through the temporary closure of two stores, arresting our loss-making DC market, and are already seeing the benefits of increased revenue from adult youth. Incremental cash flow will be generated from all of these as well as other pending activities. Lastly, a comment on 280E and the related tax and, Although the timing of federal rescheduling remains uncertain, we've previously stated that if 280E were to no longer apply, our current annual income tax expense would be expected to decrease by around $30 million.

Speaker Change: To support operating cash flow improvements, we've also reduced operations in New York through the temporary closure of two stores, are exiting our loss-making D.C. market, and are already seeing the benefits of increased revenue from adult use in Ohio.

Derek Watson: Incremental cash flow will be generated from all of these as well as other pending activities.

Derek Watson: Lastly, a comment on 280E and the related tax impact.

Derek Watson: Although the timing of federal rescheduling remains uncertain, we've previously stated that if 280E were to no longer apply, our current annual income tax expense would be expected to decrease by around $30 million.

Jesse Channon: We continue to pursue potential tax return amendments and refund claims associated with 280E from prior tax years, starting with fiscal year 2020, and we'll provide more updates when they're available. Our key financial priorities remain driving improvement in margin, EBITDA, and cash flow while proactively managing our balance. We continue to pursue adjusted EBITDA margins above 20% over the longer term, which will be with a smaller operating footprint after the closing of all pending debits. With that, let me turn the call over to Jesse to add more detail on our operation.

Derek Watson: We continue to pursue potential tax return amendments and refund claims associated with 280E from prior tax years, starting with fiscal year 2020, and we'll provide more updates when they're available.

Derek Watson: Our key financial priorities remain driving improvement in margin, EBITDA, and cash flow, while proactively managing our balance sheet.

Derek Watson: We continue to pursue adjusted EBITDA margins above 20% over the longer term, which will be with a smaller operating footprint after the closing of all pending divestitures.

jsety: With that, let me turn the call over to Jesse to add more detail on our operation.

Jesse Channon: Thanks, Derek. Many of you recall that in Q1, we discussed the substantial improvements we achieved in our wholesale business, which is a necessary factor for reaching our stated goals. Gross margin in our wholesale business in Q1 was 1000 basis points above the. In Q2, we continue to expand our gross margin in wholesale by an incremental $300,000. And that did not come at the expense of revenue growth. In fact, in Q2, our wholesale revenue rose 24% sequentially, now representing 15% of revenue in the quarter. We're not done, but we're getting better.

Derek Watson: Jeffy

Speaker Change: Thanks, Derek. Many of you recall that in Q1, we discussed the substantial improvements we achieved in our wholesale business, which is a necessary factor for reaching our stated goals as a company.

Jeffy: Gross Margin in our Wholesale Business in Q1 was 1,000 basis points above the fourth quarter.

Derek Watson: In Q2, we continue to expand our gross margin and wholesale by an incremental 300 basis points.

Derek Watson: and that's not the exexpensive revenue grow

Speaker Change: in fact in q two our wholesale revenue rose twenty-four percent sequentially now representing fifteen percent of revenue in the quarter we're not done but we're getting better

Jesse Channon: The drivers of success in our wholesale business continue to be a mixed shift to more finished goods, as well as powerful partnerships with third-party brands who leverage our retail platform and utilize our cultivation and manufacturing capacity, all of which improves our wholesale margin, which in turn improves the cost input for our retail industry. I could not be more pleased with the progress we are making on the brand partnership. New brand launches in Q2 included Old Powell's expansion into New Jersey and Virginia and Revelry's expansion into MIPS. Overall revenue from brand partnerships more than doubled from Q1.

Speaker Change: The drivers of success in our wholesale business continue to be a mixed shift to more finished goods, as well as powerful partnerships with third-party brands who leverage our retail platform and utilize our cultivation and manufacturing capacity, all of which improves our wholesale margin, which in turn improves the cost inputs for our retail inventory.

Derek Watson: I could not be more pleased with the progress we are making on the brand partnership side.

Derek Watson: New brand launches in Q2 included Old Powell Expansion into New Jersey and Virginia and Revelry Expansion into Maryland.

Jesse Channon: Our commercial partnerships are now in seven markets, Delaware, Maryland, Massachusetts, New Jersey, Pennsylvania, Virginia, and West Virginia with additional launches in the. Stepping back, David and I challenged the team to think about utilization, increasing throughput, increasing capacity, prepping for the adult use transition, and building a more comprehensive approach to how we hold. We're building a business segment that is fundamentally different from where we were before, evidenced by an improving margin profile, thoughtful product assortment, and growing customer base.

Unknown Executive: Overall revenue from brand partnerships more than doubled from Q1. Our commercial partnerships are now in seven markets, Delaware, Maryland, Massachusetts, New Jersey, Pennsylvania, Virginia, and West Virginia with additional launches in the We have great products on the shelves and a tremendous team on the ground. Really excited to see the Ohio.

Speaker Change: Overall revenue from brand partnerships more than doubled from Q1. Our commercial partnerships are now in seven markets, Delaware, Maryland, Massachusetts, New Jersey, Pennsylvania, Virginia, and West Virginia, with additional launches in the pipeline.

Speaker Change: stepping back data night challenge team to think about utilization increasingly throughput increasing capacity ptpping for adult use transition and building a more comprehensive approach to how we wholesale

Jesse Channon: As the results in Q1 and Q2 show, we are making substantial progress with more opportunity. On the cultivation side, we remain hyper focused on driving down the cost of biomass and finished goods. This enables us to continue to be aggressive in winning new customers and deploying products into. Importantly, we have a lot of verticality in our business. The success we are achieving in our wholesale business is a leading indicator of what that's going to mean overall for the costing model, which will also positively affect our retail.

Speaker Change: We're building a business segment that is fundamentally different from where we were before, evidenced by an improving margin profile, thoughtful product assortment, and growing customer base. As the results in Q1 and Q2 show, we are making substantial progress with more opportunity ahead of us.

Speaker Change: On the cultivation side, we remain hyper-focused on driving down the cost of biomass and finished goods. This enables us to continue to be aggressive in winning new customers and deploying products into market.

Speaker Change: Importantly, we have a lot of verticality in our business.

Speaker Change: The success we are achieving in our wholesale business is a leading indicator of what that's going to mean overall to the costing model, which will also positively affect our retail business.

Jesse Channon: The increase in productivity and utilization driven by a better wholesale approach is lowering costs and generating greater efficiency. In the first six months of this year, we realigned our leadership structure to take full advantage of our opportunities in both retail and wholesale. There are a number of initiatives underway, including skew rationalization and bringing new analysis, rigor, and discipline to discounting across the portfolio. We also have exciting catalysts on the horizon.

Speaker Change: The increase in productivity and utilization driven by a better wholesale approach is lowering the cost and generating greater efficiency.

Speaker Change: In the first six months of this year, we realigned our leadership structure to take full advantage of our opportunities in both retail and wholesale.

Speaker Change: There are a number of initiatives underway, including SKU rationalization and bringing new analysis, rigor, and discipline to discounting across the portfolio.

Jesse Channon: We are ensuring that we are ready for adult use transitions in Ohio, Delaware, and Virginia from day one. On that note, I was just in Ohio for the launch of adult use in our five stores, and it was a lot. We have great products on the shelves and a tremendous team on the ground. I'm really excited to see the Ohio market. Elsewhere, as David mentioned, we are incredibly well positioned for expanding wholesale in New York and have created the runway for us to succeed in that.

Speaker Change: We also have exciting catalysts on the horizon. We are ensuring that we are ready for adult use transitions in Ohio, Delaware, and Virginia from day one. On that note, I was just in Ohio for the launch of adult use in our five stores, and it was electric. We have great products on the shelves and a tremendous team on the ground. Really excited to see the Ohio market develop.

Speaker Change: Elsewhere, as David mentioned, we are incredibly well positioned for expanding wholesale in New York and have created the runway for us to succeed in that market.

Jesse Channon: It is a tough market for licensed operators, but enforcement against unlicensed retail stores is improving. On an annualized basis, this is approaching an $850 million legal market on the adult use side, likely growing to over $1 billion next year. That presents a massive wholesale opportunity, and we are positioned with confirmation capacity and riverbank that can be turned on quickly and officially. So, in sum, we are making the tough decisions when needed and capitalizing on the logical wins by opening doors and adding capacity in the best markets while closing doors in markets that underperform our targets. We are honing our operations, having the team focused on producing the best outcomes, and remaining intensively focused on rapid execution. With that, I will now turn the call back to David for his final comment.

David Hart: It is a tough market for licensed operators, but enforcement against unlicensed retail stores is improving. On an annualized basis, this is approaching an $850 million legal market on the adult use side, likely growing to over $1 billion next year.

David Hart: That presents a massive wholesale opportunity and we are positioned with cultivation capacity and riverhead that can be turned on quickly and efficiently.

Speaker Change: so in some we are making the tough decisions when needed and capitalizing on the logical winins

David Hart: By opening doors and adding capacity in the best markets, while closing doors in markets that underperform our targets, we are honing our operations, have the team focused on producing the best outcomes, and remain intensively focused on rapid execution. With that, I will now turn the call back to David for final comments. Hart?

Jesse Channon: Thanks, Jesse. As we look back on the last six months, I want to be sure to thank The Cannabis Company team, as we've been through some significant changes with even more to come as we announce transactions move toward closing. Importantly, though, I want to reiterate, we are putting in this work and transforming this business to create a sustainable business model that will compete and win in a dynamic industry that is ripe with catalysts and on the brink of a transformation of its own. Operator, please open the line for questions.

David Hart: Thanks, Jesse. As we look back on the last six months, I want to be sure to thank The Cannabis Company team, as we've been through some significant changes with even more to come as we announce transactions move toward closing. Importantly, though, I want to reiterate, we are putting in this work and transforming this business to create a sustainable business model that will compete and win in a dynamic industry that is ripe with catalysts and on the brink of a transformation of its own. Operator, please open the line for questions. Aaron said,

David Hart: Thanks, Jesse. As we look back on the last six months, I want to be sure to thank The Cannabis Company team, as we've been through some significant changes, with even more to come as we announce transactions move toward closing.

Speaker Change: Importantly, though, I want to reiterate, we are putting in this work and transforming this business to create a sustainable business model that will compete and win in a dynamic industry that is ripe with catalysts and on the brink of a transformation of its own. Operator, please open the line for questions.

Operator: And thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster, and we ask that you limit yourself to one question and one follow-up. Again, that's one question, one follow-up. One moment for our first question. And that first question comes from Aaron Grey from Alliance Global Partners. Your line is now open. And our first question comes from Aaron Grey from Alliance Global Partners. Your line is now open. Hi, thanks.

Speaker Change: and thank you.

Speaker Change: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Unknown Executive: Good day, and thank you for standing by.

Unknown Executive: Welcome to the Cannabist Company Q2 2024 earnings call. At this time, our participants are listening only mode.

Speaker Change: Please stand by while we compile the Q&A roster, and we ask that you limit yourself to one question and one follow-up. Again, that's one question, one follow-up. One moment for our first question.

Unknown Executive: After this because presentation, there'll be a question and answer session. To ask the question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.

Speaker Change: And our first question comes from Aaron Grey from Alliance Global Partners. Your line is now open.

Unknown Executive: Please be advised that today's conference is being recorded.

Lee Evans: I would now like to hand the conference over to you speaker today, Lee Evans, Senior Vice President, Capitol Markets. Please go ahead. Thank you.

Speaker Change: And our first question comes from Aaron Grey from Alliance Global Partners. Your line is now open.

Lee Evans: Good morning, and thank you for joining the Cannabist Company's second quarter 2024 earnings conference call. With me today are our Chief Executive Officer David Hart, President Jesse Channon and our Chief Financial Officer Derek Watson. Earlier this morning, we issued a press release reporting our second quarter 2024 results. A copy of this release is available on the investor's section of our corporate website, where you will also be able to access a replay of this call for up to 30 days.

unknown: Hi, thanks.

Aaron Grey: Hi, thanks. Nice job on the quarter there, and thank you for the questions this morning. So, first question for me, you guys have announced a number of divestitures, you know, for the county and then Arizona, as well as Virginia. So just want to know if you could give us a better picture of how the P&L is going to be looking on a pro forma basis, because I know, you know, mixed in with that are some profitable JAG markets as well as some profitable markets. So if you could just help get some color in terms of the pro forma P&L, that'd be helpful. Thank you.

Speaker Change: Hi, thanks. Nice job on the quarter there, and thanks for the questions this morning. So, first question for me, you guys have, you know, announced a number of divestitures, you know, for climbing in Denue, Arizona.

Aaron Grey: as well as Virginia. So just wanted to know if you could give us a better picture of how the P&L is going to be looking on a pro forma basis, because I know, you know, mixed in with that are some profit JAG markets as well as some profitable markets. So if you could just help get some kind of terms of the pro forma P&L, that'd be helpful. Thank you.

Lee Evans: Certain remarks we make today regarding future expectations, plans, and prospects for the company constitute forward-looking statements within the meaning of applicable Canadian and U.S, securities laws. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, which we disclose in more detail in the risk factor section of our annual form 10K for the year ended December 31st, 2023, which has been filed with the applicable regulatory authorities.

Unknown Executive: Derek, do you want to take this one?

Derek Watson: Derek, do you want to take this one?

Speaker Change: Derek, do you want to take that one?

Derek Watson: Morning, Aaron. It's a good question and something we're anticipating getting a lot of questions on as well. So, because of the announced divestitures, that's still working through the timing of the closing. We're not updating or providing guidance at this time. Once we've got a little more insight into the timing of those closings, we will provide an outlook, probably as part of our Q3 Yarning School,

Speaker Change: Yep, happy to.

Derek Watson: Morning, Aaron. It's a good question and something we're anticipating getting a lot of questions on as well. So, because of the announced divestitures that are still working through timing of closing, we're not updating or providing guidance at this time.

Speaker Change: Once we've got a little more insight into the timing of those closings, we'll provide an outlook, probably as part of our Q3 earnings call, if not before.

Lee Evans: Also, please note that on today's call, we will refer to certain non-gap financial measures such as Epida and Adjusted Epida. These measures did not have any standardized meaning prescribed by GAP, and may not be comparable to similar measures presented by other companies. The cannabis company considers certain non-gap measures to be meaningful indicators of the performance of its business in addition to, but not as a substitute for, or GAP results. A reconciliation of such non-gap financial measures to their nearest comparable GAP measure is included in our press release issued earlier today.

Aaron Grey: Okay, thanks. That makes sense. Um, second question for me, just in terms of Ohio, I understand it's very early days, just any color you could provide in terms of, you know, the first few days of sales, how that's trended versus other markets, and then any potential readthroughs in terms of how well the inventory the market is in terms of supply demand, potential supply shortages coming. So I know there were some limitations in terms of the lead-up time to adult Thank you.

Speaker Change: Okay, thanks, that makes sense. Second question for me, just in terms of Ohio, I understand it's very early days. Is there any color you could provide in terms of, you know, the first...

Speaker Change: A few days of sales, how that's trended versus other markets, and then any potential read-throughs in terms of how well-inventoried the market is in terms of supply-demand, potential supply shortages coming. I know there was some limitations in terms of the lead-up time to adult use sales starting, as well as capacity that folks were able to have there. Thank you.

David Hart: With that, I will turn the call over to David Hart to get us started. David? Thank you, Lee, and thank you to everyone who has joined us on the call today.

David Hart: Aaron, great question. We launched with all five locations yesterday. We're not going to share revenue details, but it was a phenomenal day one for us. I think it was the best opening day for us as a company. I've been with the company for every adult use transition.

Speaker Change: Aaron, great question. We launched with all five locations yesterday. We're not going to share revenue details, but it was a phenomenal day one for us. I think it was the best.

David Hart: On the two previous burning calls since Jesse and I were appointed to lead the cannabis company in mid-January, you have heard us clearly outline our objectives and the actions that we are taking to build a better business to create a sustainable economic model and to drive values for all of our stakeholders over time. We've been very clear that this company will look materially different by the end of 2024, and we have been running fast at the opportunities to make that happen.

Jesse Channon: Opening day for us as a company. I've been with the company for every adult use transition, and this was the biggest by far number of stores, complexity, and anticipation and preparation. But Jesse was in market, so I want to pass it over to Jesse, who's there in real time.

David Hart: And this was the biggest by far number of stores, complexity, and anticipation preparation. But Jesse was in the market. So I wanted to want to pass over to Jesse, who was there in real time.

Jesse Channon: Hey, good morning, Aaron. Yes, I had the opportunity to be there for open. I was at two of our stores. It was amazing.

David Hart: More specifically, in 2024, we are fixated on driving increased profitability, rationalizing our geographic footprint and corporate expense for a file, and proactively implementing all of the changes required to strengthen our balance sheet, adequately need our debt obligation, and set the company up for sustained growth and profitability in 2025 in the end. To achieve these objectives, we have had to rapidly identify where opportunities slide and move aggressively to capture them.

Jesse Channon: Hey, good morning, Aaron. Yes, I had the opportunity to be there for open. I was at two of our stores.

Jesse Channon: It was amazing. The team was well prepared. The customers were incredibly excited. I think what we've already seen is a really strong start to adult youth sales there, and obviously more to come, right? As the regs expand and we see the expansion of both

Jesse Channon: The team was well prepared, and the customers were incredibly excited. I think what we've already seen is a really strong start to adult use sales there, and obviously, more to come, right? As the regulations expand and we see the expansion of both the amount of product that consumers can buy and also the full assortment as we get into pre-rolls and combustibles and some other things that weren't yet covered, right? The Ohio launch was sort of the legacy medical marijuana, but adult use customers coming in the door I think we're incredibly excited about what we're seeing.

David Hart: To that end, in the first half of 2024, we have taken a number of critical steps. A 13.2 million to satisfy our May 2024 debt majority, following on a convertible debt financing completed in March. We implemented an additional corporate restructuring in Q2, both labor and non-labor, that would generate $10 million in cost savings on an annual basis. Restructured a regional operational leadership to align retail and wholesale commercialization opportunities. Initiated the vestitures of non-core and underperforming assets, most notably Florida, which is expected to reduce loss-making operations and increase efficiency. When we restructure our wholesale operation and go-to-market strategy with a shift towards signature goods and the higher mix of brand new partner products, which is helped to reduce underutilized capacity and our cultivation and manufacturing portfolio.

Speaker Change: The amount of product that consumers can buy and also the full assortment as we get into pre-rolls and combustibles and some other things that weren't yet covered, right, in the Ohio launch was sort of the legacy medical, but the adult use customers coming in the door.

Jesse Channon: From a capacity and sort of availability and preparedness standpoint, we were actually well-prepared. I think we took the approach of getting out in front of this and ensuring that regardless of when that moving target or date was ultimately going to hit, we were going to be in a position to be able to fully service the stores. We participated in some of the wholesale rush that took place over the last couple of months with some other providers making sure that they had what they needed, and brands making sure that they had what they needed.

Speaker Change: I think we're incredibly excited for what we're seeing from a capacity and sort of availability and preparedness.

Speaker Change: We were actually well prepared. I think we

Speaker Change: took the approach of getting out in front of this and ensuring that regardless of when that moving target or date was ultimately going to hit.

Speaker Change: We were going to be in a position.

Speaker Change: to be able to fully service the stores we participated in some of the wholesale rush that took place

Speaker Change: over the last couple of months with some other providers making sure that they had and brands making sure that they had what they needed. But we were well prepared in both our first party brands as well as in stocking up on our partner brands that we were going to be carrying at launch.

Jesse Channon: But we were well-prepared for both our first-party brands as well as in stocking up on our partner brands that we were going to be carrying at launch. So I think overall, Ohio is going to be a great indication of what we're capable of doing as an organization when it comes to a medical-to-adult-use transition moving forward.

David Hart: By any measure, the work that has been accomplished in the first six months of 2024 by the entire Cannabist Company team has been transformative. As we announced in June, we are exiting the state of Florida, where we have 14 dispensaries and three cultivation manufacturing facilities. As we disclose when we announce the exit, Florida represented less than 5% of total revenue in Q1, which remained true in the second quarter. Given the imbalance of our operations in Florida, the market was also loss-making.

Speaker Change: So I think overall, Ohio is going to be a great indication of what we're capable of doing as an organization when it comes to a medical to adult use transition moving forward.

Aaron Grey: Okay, great to hear. Thanks very much for the call. I'll jump back into the queue.

Speaker Change: Okay, great to hear. Thanks very much for the call. I'll jump back into the queue.

Speaker Change: And thank you. And one moment for our next question.

Ty Collin: And our next question comes from Ty Collin from A-Capital. Your line is now open. Hey, morning, guys.

Operator: And thank you. And one moment for our next question, and our next question comes from Ty Collin from A-Capital. Your line is now open. Hey, morning, guys.

David Hart: With a loss of approximately 10 million in adjustability to expect it in 2024, Florida was a priority on our list for rationalization. To date, we have made great progress on the Florida vestitures and look forward to signing significant agreements and sharing additional details in the near future. As part of the rationalization and mission underway, we've also closed two medical dispensaries in New York, but continue to operate the Riverhead New York cultivation in the manufacturing facility, retaining the optionality of an improved also market in New York, which is starting to show some signs of life.

Speaker Change: And our next question comes from Ty Collin from A-Capital. Your line is now open.

Ty Collin: Hey morning, guys. Thanks for the questions here. And congrats on the quarter.

Derek Watson: Derek, you mentioned in your comments the unabsorbed overhead, again, something you guys have been talking about and working on for a little while here. I'm just wondering if you could maybe update us on which markets are the biggest culprits at this point, and what's going to drive improvement there?

Ty Collin: Derek, you mentioned in your comments the unabsorbed overhead, again, something you guys have been talking about and working on for a little while here. I'm just wondering if you could maybe update us on which markets are the biggest culprits at this point, and what's going to drive improvement there?

Ty Collin: Hey morning, guys. Thanks for the questions here. And congrats on the quarter.

Ty Collin: Hey, morning, guys. Thanks for the questions here and congrats on the quarter. Derek, you mentioned in your comments the unabsorbed overhead. Again, something you guys have been talking about and working on for a little while here. I'm just wondering if you could maybe update us on which markets are the biggest culprits at this point and what's going to drive improvement there.

Derek Watson: What we've said previously is that there are a number of markets, and it's not overweight in any single one.

Jesse Channon: Jesse will add more detail in a moment.

Speaker Change: Sure. Good morning, Ty.

Derek Watson: And we had turned capacity off last year, particularly after the transaction that didn't complete, as Jesse mentioned, in Ohio. We were prepared for adult use. That was one of the locations that we turned back on to 100% capacity. It was around the end of the quarter, i.e., end of June, so we didn't really see much of an impact. But the other markets, not surprisingly, that we've talked about before, Pennsylvania, that's awaiting adult use as well, New York because of the adult use transition that hasn't fully taken off, but, as you've heard, certainly increasing, and then the splattering of other markets as well.

David Hart: As we announced just last week, we are selling our operations in Arizona, as well as one of our two licenses and affiliated operations in Virginia to multi-state operator Burrano. This is a win-win transaction. For the Cannabist Company, we are receiving total consideration of approximately 105 million, which strengthens our balance sheet and has already provided a boost to liquidity, positive step towards the risk in the balance sheet so that we can focus on operations.

Speaker Change: What we've said previously is that there's a number of markets. It's not overweight in any single one, and we had turned capacity off last year, particularly after the transaction that didn't complete, as Jesse mentioned, in Ohio.

Ty Collin: Okay, great. That's helpful.

Unknown Executive: We were prepared for adult use. That was one of the locations that we turned back on to 100% capacity. It was around the end of the quarter, i.e., end of June, so we didn't really see much of that impact. But the other markets, not surprisingly, that we've talked about before, Pennsylvania, that's

Speaker Change: We were prepared for adult use. That was one of the locations that we turned back on to 100% capacity. It was around the end of the quarter, i.e. end of June , so we didn't really see much of that impact.

David Hart: We expect both the Arizona and Virginia transactions to close in the coming weeks. While we have successfully implemented major structural changes in a very short period of time, we are not anywhere near done. We continue to evaluate underperforming assets. For example, we're in the process of accessing Washington DC and are completing our analysis of other locations in the portfolio. While we are rationalizing our geographic footprint and aligning corporate costs with a smaller operational portfolio, we are simultaneously positioning ourselves to win in our best market.

Speaker Change: But the other markets, not surprisingly, that we've talked about before, Pennsylvania, that's

Speaker Change: awaiting adult use as well, New York because of

Speaker Change: The adult use transition that hasn't fully taken off, but as you've heard, certainly increasing, and then splattering of other markets as well.

Ty Collin: And then, in sticking on to New York, I guess I'm curious to hear the rationale behind divesting those retail assets when it sounds like the market is kind of starting to come back to life with some of the illicit enforcement going on. And maybe you could also touch on what kind of wholesale penetration you have there among the legal retailers. And I just want to get a sense of the wholesale opportunity there is in that market growth. And I just want to get a sense of the retail market. And I just want to get a sense of the market.

Speaker Change: Okay, great. That's that's helpful. And then in sticking on New York, I guess I'm curious to hear, I suppose, the rationale behind divesting those retail assets when it sounds like the market is kind of starting to come back to life with some of the illicit enforcement going on. And maybe you could also touch on what kind of wholesale penetration you have there among the legal retailers. And I just want to get a sense of the wholesale opportunity there as that market grows.

David Hart: Ohio is just converted to adult use and we are perfectly positioned with a tier one license school canopy and five stores, primed and ready with the right inventory and additional locations under development. We have identified a location for our sixth dispensary, which is an exciting next step after the launch of adult use on August 6. Notably, we saw strong sequential increase in revenue in Ohio and Q2 and indicator of the excellent momentum we have in the market thanks to our growing wholesale program.

David Hart: Hi Ty, this is David. I'll take the first part and then I'll hand the wholesale question over to Jesse. With respect to the two locations we closed, we had lease expirations for two of our locations. Those locations were not commercially viable, in our opinion, for adult use going forward, so we are looking for new locations for both of those. One was in Manhattan, and the other was in Rochester.

David Hart: We increase capacity in New Jersey and expect to have another dispensary open around the end of the year, which will bring us to the state maximum of three. We are also very excited about the pending transition to adult use in both Delaware and Virginia, two of the markets where we remain very well positioned.

Speaker Change: Hi Ty, this is David. I'll take the first part and then I'll hand the wholesale question over to Jesse. With respect to the two locations we closed, we had

David Hart: lease expirations for two of our locations. Those locations were not commercially viable, in our opinion, for adult use going forward. So we are looking for new locations for both of those. One was in Manhattan and the other was in Rochester. We still have two open, one out in Long Island in our

David Hart: In summary, our team is collectively attacking with a challenger company in the past. We are simplifying our business, rationalizing our footprint, investing in the best markets and systems, implementing material changes in our wholesale and mutual operations, improving margins, strengthening our balance sheet and to put it simply building a better business.

David Hart: We still have two open, one out in Long Island at our Brooklyn location. Our Brooklyn location was the facility that was approved and authorized for us to convert to adult use. We've not elected to move forward with that yet, but we do plan to be fully open in all of our dispensaries over time, but we had the opportunity to exit based on lease expiration in locations that were just not commercially viable for adult use. Jesse, you want to cover the wholesale side? Yeah, thanks.

Speaker Change: Brooklyn Location. Our Brooklyn Location was the facility that was approved, authorized for us to convert to adult use. We've not elected to move forward with that yet, but we do plan to be fully opened in all of our dispensaries over time, but we had the opportunity to exit

David Hart: We look forward to keeping you a prize of our continued progress.

Derek Watson: With that, I will now turn the call over to Derrick to discuss our financial results. Thank you, David and good morning, everyone. I'll provide a summary of the key financial results for the second quarter, discuss trends in our market and comment on our continuing initiatives to strengthen the company. Adjusted gross profit in the first quarter was 48.2 million, up slightly over the prior quarter and down year over year. The adjusted gross margin of 38.5% in Q2 was down slightly compared to the 39.1% in the first quarter.

Speaker Change: Based on lease expiration to locations that were just not commercially viable for adult use. Jesse, you want to cover the wholesale side?

Jesse Channon: Yeah, thanks, David. So from a wholesale point of view, we have continued to expand significantly. I don't think we've released anything definitively with regard to what the penetration looks like in any individual market from an account sort of point of view, but we have continued to expand significantly in New York. I think that's an exciting opportunity for us moving forward. We are in the process of expanding our capacity to be able to better serve you.

Jesse Channon: Yeah, thanks, David. So from a hotel point of view, we have continued to expand significantly. I don't think we've released anything definitively with regards to

Jesse Channon: What the penetration looks like in any individual market from an account Sort of point of view, but we have continued to expand significantly in New York. I think that's an exciting opportunity for us moving forward

Jesse Channon: We have high inbound demand right now from a wholesale point of view in that market, and we've been very conservative and data driven with regard to expansion in the gardens in a number of states, New York being 1 of them. So we did want to see some of those health indicators before we started aggressively expanding for the wholesale business there. I think we've seen what we need to know that we can now grow into servicing that market from a left conservative point of view.

Jesse Channon: We are in the process of expanding our capacity to be able to better serve. We have a high inbound demand right now from a wholesale point of view in that market. And we've been very

Jesse Channon: conservative and data-driven with regards to expansion in the gardens in a number of states, New York being one of them, so we did want to see some of those

Jesse Channon: So I think you'll see a continued expansion, both from a total account point of view, as well as from a total sort of biomass point of view, coming from us into that market over the coming quarters. We're excited by what we see, right? I think to David's point in the commentary to open the call, the June reported numbers, if I'm not mistaken, put it over an 800 million dollar run rate for the legal business in New York from an annualized rate, and we can see that continuing to grow as enforcement continues to happen.

Jesse Channon: health indicators before we started aggressively expanding for the wholesale business there. I think I think we've seen what we need to to know that we can now.

Jesse Channon: grow into servicing that market from a less conservative point of view. So I think you'll you'll see a continued expansion both from a total account point of view as well as a total sort of biomass point of view coming from us into that market.

Derek Watson: As we previously described, we continue to experience an overhang from the unabsolved overhead in underutilized production facilities, which remained flat compared to Q1 and represented a 4.2 percentage point impact on gross margin. This has already come down from the five percentage point impact experience during 2023 and we anticipate further improvement as we turn on additional capacity and markets such as Ohio and New Jersey.

Jesse Channon: over the coming quarters.

Speaker Change: We're excited by what we see, right? I think to David's point in the commentary to open the call, the June reported numbers, if I'm not mistaken, put it at, you know, over an $800 million run rate for the legal business in New York from an annualized. And we can see, we see that continuing to grow as enforcement continues to happen. And as we see the opening of

Jesse Channon: And as we see the opening of new stores, we're well, well positioned. We have a team that's fully staffed there, both from a wholesale marketing and a wholesale sales rep point of view. So, they're in the market engaging with these customers, and now it's a matter of ensuring that we have the proper amount of product to service those accounts, which is what we're growing into.

Derek Watson: In mid June, we announced the incremental corporate restructuring, targeting a further $10 million in annualized cost savings. Due to the timing, this had only limited impact on our Q2 results, but will be seen more fully starting in Q3. Adjusted EBITDA in Q2 was 17.5 million and increased from the 15.3 million in Q1, with the adjusted EBITDA margin improving to 14% compared to 12.5% in the first quarter. As from operations with negative $3 million, an improvement over the first quarter is negative $6.2 million and included some upfront costs associated with our restructuring.

Speaker Change: of New Stores. So we're well positioned. We have a team that's fully staffed there, both from a wholesale marketing and a wholesale sales rep point of view. So they're in market, engaged with these customers. And now it's a matter of ensuring that we have the proper amount of product to service those accounts, which is what we're growing into as we speak.

Operator: And thank you, and one moment for our next question. And our next question comes from Frederico Gomes from ATB Capital Markets. Your line is now open. Good morning.

Speaker Change: Great. Thanks, guys.

Jesse Channon: Yep.

Speaker Change: And thank you, and one moment for our next question.

Speaker Change: And our next question comes from Frederico Gomes from ATB Capital Markets. Your line is now open.

Frederico Gomes: Good morning. Thanks for taking my questions. Just the first question on New Jersey, I guess, wholesale. Comment on the pricing environment there and your penetration currently in that state.

Speaker Change: Good morning. Thanks for taking my questions. Just the first question on New Jersey, I guess, wholesale.

Derek Watson: CapEx in the quarter was 1.7 million, with one new retail location in Richmond, Virginia having opened. We continue to expect CapEx over the longer term at an average of around $2 to $3 million per quarter, primarily supporting new store opening and enhancements to our manufacturing capabilities. We have 82 active retail locations at the end of the second quarter, with the one store opening in Virginia, enclosures in New York, Colorado and Washington, DC.

Speaker Change: If you could just comment on the pricing environment there and your penetration currently in that state.

Unknown Executive: Absolutely. Hey, good morning, Fred. So, New Jersey continues to be a really impactful business for us from a wholesale point of view. We've spoken in the past about how if we could copy-paste what we're doing from an execution point of view in that market, I think we'd be incredibly excited across the country. And it is acting as sort of a template.

Jesse Channon: Jesse, you want to take that one?

Jesse Channon: Absolutely. Hey, good morning, Fred. So, New Jersey continues to be a really impactful business for us from a wholesale point of view. We've spoken in the past about how if we could copy paste what we're doing from an execution point of view in that market, I think we'd be incredibly excited across the country. And it is acting as sort of the template. From a pricing point of view, I think other operators, as they've reported, have spoken to how happy everyone is with where pricing currently sits in New Jersey and the lack of compression.

Jesse Channon: From a pricing point of view, I think other operators, as they've reported, have spoken to how happy everyone is with where pricing currently sits in New Jersey and the lack of compression and the lack of sort of velocity in that compression that we've seen as that market continues to mature. We're still seeing significant premiums on both bulk trades and finished goods trades inside of the wholesale ecosystem. New Jersey is one of the few markets for us portfolio-wide where we continue to have large enterprise supply agreements from a bulk point of view to provide biomass to both other operators and brands, as a significant portion of that business.

Unknown Executive: From a pricing point of view, I think other operators, as they've reported, have spoken to how happy everyone is with where pricing currently sits in New Jersey and the lack of compression and the lack of sort of velocity in that compression that we've seen as that market continues to mature. We're still seeing significant premiums on both bulk trades and finished goods trades inside of the wholesale ecosystem. New Jersey is one of the few markets for us, portfolio-wide, where we continue to have large enterprise supply agreements from a bulk point of view to provide biomass to both other operators and brands.

Derek Watson: We have more retail locations in development, one in New Jersey, one in Maryland, one in Virginia, and now three in Ohio post conversion to adult youth in order to reach our maximum license caps need to these states. We ended the second quarter with 22 million of cash on hand. During the quarter, we paid off the remaining $13.2 million of our 13% senior notes that the Jordan May using net proceeds of $14.8 million from the private placement of 2027 convertible notes that closed during Q1. We continue to target initiatives to improve cash flow further do you lever the balance sheet and reduce interest expense.

Jesse Channon: and the lack of sort of velocity in that compression that we've seen.

Jesse Channon: as that market continues to mature. We're still seeing significant premiums on both bulk trades and finished good trades inside of the wholesale ecosystem. New Jersey is one of the few markets for us, portfolio wide, where we continue to have

Jesse Channon: large enterprise supply agreements from a bulk point of view to provide biomass to both other operators and brands.

Jesse Channon: We've been very transparent about moving the mix into finished goods, which has led to a significant margin expansion over the past two quarters in that wholesale business. New Jersey is one of those stories, though, where the pricing is still so advantageous, and we're very fortunate to have the scale in that market from a garden point of view and the testing and quality of flour coming out of it that we do. So that continues to remain a piece of the business there and obviously will adapt as there's a change in the environment with regard to pricing there.

Jesse Channon: as a significant portion of that business. We've been

Derek Watson: To this end, we've recently announced the pending vestiges in Florida, Arizona, and Virginia. To support operating cashflow improvements, we've also reduced operations in New York through the temporary closure of two stores, arresting our lost making DC market, and are already seeing the benefits of increased revenue from adult youth to no higher. Incremental cashflow will be generated from all of these as well as other pending activities.

Jesse Channon: very transparent about moving the mix into finished goods.

Jesse Channon: which has led to the significant margin expansion over the past two quarters in that wholesale business.

Jesse Channon: New Jersey is one of those stories, though, where the pricing is still so advantageous and we're very fortunate to have.

Jesse Channon: the scale in that market from a garden point of view, and the testing and quality of flower coming out of it that we do. So that continues to remain a piece of the business there, and obviously we'll adapt.

Jesse Channon: So, I think, you know, long story short, it's one of our best markets with regard to total percentage of penetration both on the retail side as well as the amount of collaborative work that we're doing with other operators and brands from a supply agreement point of view. And pricing has been favorable for the operators from a compression point of view versus other markets that we've seen at this point in their maturity and growth.

Derek Watson: Lastly, a comment on 280E in the Related Tax Impact, although the timing of federal rescheduling remains uncertain, we've previously stated that if 280E would no longer apply, our current annual income tax expense would be expected to decrease by around $30 million. We continue to pursue potential tax return amendments and refund claims associated with 280E from prior tax years, starting with fiscal year 2020, and will provide more updates when they're available.

Jesse Channon: as there's a change in the environment with regards to the pricing there. So I think, you know, long story short, it's one of our best markets with regards to total percentage of penetration, both on the retail side, as well as the amount of

Jesse Channon: collaborative work that we're doing with other operators and brands from a supply agreement point of view and pricing has been favorable for the operators from a compression point of view versus other markets that we've seen at this point in their maturity and adult use.

David Hart: And then just thinking about, I guess, your footprint currently and potential for growth. You mentioned Ohio, in terms of, you know, potentially adding stores there. Are there any other markets here where you're thinking about expanding or where you think there is an opportunity to expand from a retail perspective?

unknown: And then just thinking about, I guess, your footprint currently and potential for growth. I mean, you mentioned Ohio in terms of, you know, potentially adding stores there. Are there any other markets here where you're thinking about expanding or where you think there is an opportunity to expand from a retail perspective?

Derek Watson: Our key financial priorities remain driving improvements in margin, EBITDA and cashflow while proactively managing our balance sheet. We continue to pursue a justed EBITDA margin above 20% over the longer term, which will be with a smaller operating footprint after the closing of all pending vestiges.

Speaker Change: Thank you for that. And then just

Speaker Change: Thinking about, I guess, your footprint currently and potential for growth, I guess.

Speaker Change: I mean, you mentioned Ohio, in terms of, you know, potentially adding stores there. Are there any other markets here where you're thinking about expanding or where you think there is an opportunity to expand from a retail perspective?

Jesse Channon: With that, then we turn the call over to Jesse to add more detail on our operation. Jesse? Thanks, Derek.

David Hart: I'll take that one, Frederico and David. We do have three more doors that we plan to open in Ohio through the lottery process between now and at some point in 2025. We have one remaining store to open in our Richmond HSA down in Virginia. We highlighted, I think, in our opening statement that we plan to open our last remaining dispensary in New Jersey, our 3rd location, by the end of the year.

Speaker Change: I'll take that one, Frederico, and David. We do have three more doors that we plan to open in Ohio through the lottery process between now and...

Jesse Channon: Many of you will call that in Q1, we discussed the substantial improvements we achieved in our wholesale business, which is a necessary factor for reaching our stated goals as a company. Gross margin in our wholesale business in Q1 was 1000 basis points above the fourth quarter. In Q2, we continue to expand our gross margin in wholesale by an incremental 300 basis points. That did not come at the expense of revenue growth.

Speaker Change: at some point in 2025. We have one remaining store to open.

Speaker Change: in our richmond ha down in virginia

Speaker Change: We highlighted, I think, in our opening statement that we plan to open our last remaining dispensary in New Jersey, our third location, by the end of the end of the year. And in New York, we have to find 2 new locations as we think about the.

David Hart: And in New York, we have to find 2 new locations as we think about the improving environment for retail and the adult use retail presence for us in the New York market. Outside of that, we just had the Ohio conversion. And now we're looking at the Delaware market, which will soon turn adult use here in short order. That's the next 1 on our list and then followed by Virginia later and probably early 2026. But from a CapEx perspective, we're basically fully built out in anticipation of those converging adult use markets.

Jesse Channon: In fact, in Q2, our wholesale revenue rose 24% sequentially, now representing 15% of revenue in the quarter. We're not done, but we're getting better. The drivers of success in our wholesale business continue to be a mixed shift to more finished goods, as well as powerful partnerships with third-party brands who leverage our retail platform and utilize our cultivation and manufacturing capacity, all of which improves our wholesale margin, which in turn improves the cost influence for our retail inventory.

Speaker Change: the improving environment for adult use retail presence for us in the New York market.

Speaker Change: Outside of that, we just had the Ohio conversion, and now we're looking at the Delaware market turning adult use here in short order. That's the next one on our list.

Speaker Change: followed by Virginia, you know, later and probably early 2026.

Jesse Channon: I could not be more pleased with the progress we are making on the brand partnership side. New brand launches in Q2, including old pal expansion into New Jersey and Virginia and revolutionary expansion into Maryland. Overall revenue from brand partnerships more than doubled from Q1. Our commercial partnerships are now in seven markets, Delaware, Maryland, Massachusetts, New Jersey, Pennsylvania, Virginia and West Virginia, with additional launches in the pipeline.

Speaker Change: but from a CapEx perspective.

Derek Watson: We're basically fully built in anticipation of those converging adult use markets, and Derek mentioned earlier the adult use convergence opportunity in Pennsylvania where we're already built. So we're CapEx-like between here and the conversions and the organic growth.

David Hart: And Derek mentioned earlier the adult use convergence opportunity in Pennsylvania where we're already built. So we're CapEx light between here and the conversions and the organic growth that we think is ahead of us in the portfolio, the remaining portfolio.

David Hart: Thank you very much for the call. Thank you very much for the call.

Derek Watson: Everything is ahead of us in the portfolio, the remaining portfolio.

Operator: And thank you. And one moment for our next question. And our next question comes from Matt Bottomley from Canaccord Genuity. Your line is now open. Good morning, everyone. Thanks for all the questions.

Jesse Channon: Stepping back, David and I challenge the team to think about utilization, increasing throughput, increasing capacity, tapping for a belt, use transition and building a more comprehensive approach to how we wholesale. We're building a business segment that is fundamentally different from where we were before, evidenced by an improving margin profile, thoughtful product assortment and growing customer base. As a result from Q1 and Q2 show, we are making substantial progress with more opportunity ahead of us.

Speaker Change: Great, thank you very much for the call.

Speaker Change: and thank you and one moment for our next question

Speaker Change: And our next question comes from Matt Bottomley from Canaccord Genuity. Your line is now open.

unknown: Good morning, everyone. Thanks for all the

Matt Bottomley: Good morning, everyone. Thanks for all the colors so far.

Matt Bottomley: I just wanted to go back to some of the changes in the streamlining initiatives. I understand that you can't give specifics, you know, given that there are some, you know, moving parts here, and some of them haven't closed. So I'm not looking for specific numbers. But there has been good, you know, information that's been put out there from you guys. And then just from some of the transaction details we've seen that are public.

Matt Bottomley: Good morning, everyone. Thanks for all the colors so far. I just want to go back to some of the changes in the streamlining initiatives. I understand that you can't give specifics, you know, given that there are some, you know, moving parts here, and some of them haven't closed. So I'm not looking for specific numbers. But there has been good, you know, information that's been put out there from you guys. And then just from some of the transaction details, we've seen that are public. So I know Florida, I think you said was less than 5% of your revenues, we can look at Arizona for sort of an average, you know, store contribution based on publicly available information that comes from the state. So I think the missing piece that would be helpful for us is maybe if you don't talk about the assets specifically, but maybe just the Virginia market as a whole, is there any indication you can give us as

Jesse Channon: On the cultivation side, we remain hyper focused on driving down the cost of biomass and finished goods. This enables us to continue to be aggressive in winning new customers and deploying products into market. Importantly, we have a lot of verticality in our business. The success we are achieving in our wholesale business is a leading indicator of what that's going to mean overall to the cost of the model, which will also positively affect our retail business. The increase in productivity and utilization driven by a better wholesale approach is lowering the cost and generating greater efficiency.

Matt Bottomley: So I know Florida, I think you said was less than 5% of your revenues, we can look at Arizona for sort of an average, you know, store contribution based on publicly available information that comes from the state. So I think the missing piece that would be helpful for us is maybe if you don't talk about the assets specifically, but maybe just the Virginia market as a whole, is there any indication you can give us as in terms of growth rates year over year, or maybe what the overall TAM opportunity is, and in terms of medical, something that doesn't talk about the assets specifically, but maybe a little more macro just to get some color on exactly what's going on in that space.

Matt Bottomley: In terms of growth rates year over year, or maybe what the overall TAM opportunity is in terms of medical. Something that doesn't talk about the assets specifically, but maybe a little more macro just to get some color on exactly what's going on in that space.

Jesse Channon: In the first six months of this year, we re-aligned our leadership structure to take full advantage of our opportunities in both retail and wholesale. There are a number of initiatives underway, including skew rationalization and bringing new analysis, rigor, and discipline to discounting across the portfolio.

David Hart: Hey, Matt, this is David. I think at this point, we're going to just, we're going to probably wait for us to close the transaction, and we'll either provide incremental data around the go forward P&L profile for us, either between now and the end of the quarter or at our next quarterly earnings at this point.

Speaker Change: Thank you.

Speaker Change: Hey Matt, this is David. I think at this point we're going to just, we're going to probably wait for us to close the transaction.

Jesse Channon: We also have exciting catalysts on the horizon. We have great products on the shelves and a tremendous team on the ground, really excited to see the Ohio market to go. Elsewhere, as David mentioned, we are incredibly well positioned for expanding wholesale in New York and have created the wrong way for us to succeed in that market. It is a tough market for licensed operators, but enforcement against unlicensed retail stores is improving.

Speaker Change: and we either provide incremental...

Speaker Change: data around the go forward po profile for us either between now in the end of the quarter or at our next core earnings and this

unknown: Okay, I can't blame him for trying. I got it.

Matt Bottomley: Okay, can't blame them for trying. I got it.

Speaker Change: Okay, can't blame them for trying. Got it. Second question for me is just, one of the sort of top five markets that we haven't talked about a lot on these earnings calls being Colorado. So given the fact that, you know, the strategy seems really to be, you know, shore up profitability and sort of, you know, get maybe narrower instead of, you know, increasing breadth. So that's a market that I know has normalized a little bit, but historically has been a drag on margins for some of the smaller operators. So given that you're fairly scaled up there with, you know, a couple dozen dispensaries, just wondering if you can give indication on how margins have trended in Colorado, whether it's this quarter or just over, you know, the last, you know, number of prints you've had.

Jesse Channon: On an annualized basis, this is approaching an 850 million dollar legal market on the adult side, likely growing over $1 billion next year. That presents a massive wholesale opportunity and we are positioned with cultivation capacity and riverhead that can be turned on quickly and efficiently.

Jesse Channon: So in some, we are making the tough decisions when needed and capitalizing on the logical win by opening doors and adding capacity in the best markets, while closing doors and markets that underperform our target. We are honing our operations, have the team focused on producing the best outcomes and remain intensively focused on rapid execution.

Matt Bottomley: Second question for me is just one of the sort of top five markets that we haven't talked about a lot on these earnings calls, being Colorado. So given the fact that, you know, the strategy seems really to be to, you know, shore up profitability and sort of, you know, get maybe narrower instead of, you know, increasing breadth. So that's a market that I know has normalized a little bit but historically has been a drag on margins for some of the smaller operators.

Jesse Channon: It's a good question, Matt. So, Colorado has improved for us. I think I'll let Jesse speak to some of that.

Jesse Channon: current market dynamics from the propricing and supply demand perspective but we've

Jesse Channon: We, over the last two and a half years, we have invested a lot of time and energy and capital into improving that business. And we've seen a pretty dramatic improvement, from our perspective, for the last two quarters.

David Hart: With that, I will now turn the call back to David for final comment. Part. Thanks, Jesse.

David Hart: As it looked back in the last six months, I want to be sure to thank the Canvas Company team as we've been through some significant changes with even more to come as the announced transactions moved to a closing. Importantly, though, I want to reiterate, we are putting in this work and transforming this business to create a sustainable business model that will compete and win in a dynamic industry that is ripe with catalysts.

Speaker Change: from a retail perspective and so we feel much better today about colorado than we did say a year ago year ahalf ago part of that is the effort that we put into part of it is what's taking place in the market place with respect toa consolidation and store closures i think people have been waiting for

Unknown Executive: And on the brink of the transformation of the zone operator, please open the line for questions. And thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. So with all your questions, please press star one one again. Please stand by. We'll be compiled a Q&A roster and we ask that you limit yourself to one question and one follow up. Again, there's one question, one follow up, one moment for our first question.

Speaker Change: this sort of consolidation wave in the marketplace to take place. It's probably taken two years longer than people anticipated, but it's, you know, it's a market that is very mature. They're been in a very mature adult use market. It's a big market still, even off the highs from the pandemic high that we had a number of years ago.

Jesse Channon: So it still represents a big market for us, and there's opportunity, too, which we continue to see, to take market share. So we're cautiously optimistic about it, but I don't think we would want to characterize it as something that would look and feel like a Virginia market or, you know, a limited license medical program. They just fundamentally look different. But, Jesse, maybe you just give some incremental color on what you're seeing on the ground, because there are some green shoots in terms of what we've been expecting to see for the last few years and finally starting to take place.

Aaron Gray: And that first question comes from Aaron Gray from Alliance Global Partners.

Aaron Gray: Your line is not open. And our first question comes from Aaron Gray from Alliance Global Partners.

Matt Bottomley: So given that you're fairly scaled up there with, you know, a couple dozen dispensaries, just wondering if you can give an indication of how margins have trended in Colorado, whether it's this quarter or just over, you know, the last number of prints you've had.

Aaron Gray: Your line is not open. Hi, thanks. Nice job on the corner there. And I think for the question this morning. So first question for me, you guys have announced a number of divestitures. You know, Florida coming and then Arizona, as well as Virginia. So just want to know if you could give us a better picture of how the PML is going to be looking on a pro for a basis. I know you'll mix them with all in that or some profit, jag mark it as well, some profitable market. So if you could just help get some color in terms of the pro for a piano, that would be helpful.

Derek Watson: Thank you. Derek, you want to take that one. Yes, happy to. Morning, Aaron. It's good question and something we're anticipating getting a lot of questions on as well.

Derek Watson: So because of the announced the vestitures that still working through timing of closing, we're not updating or providing guidance at this time, but once we've got a little more insight into the timing of those closings will provide an outlook probably as part of our Q3 units.

Jesse Channon: What's happened on stabilization in pricing from a wholesale point of view, availability of product, what we're seeing with regards to just chatter in the state of...

Speaker Change: other operators and brands when it comes to you know conversations about closing locations or

Speaker Change: The Typical Early Indicator of the Online Complaining About Receivables and Paying Bills. We believe there's probably another wave of either consolidation or retraction on a number of areas of the state in Colorado coming, which I think will benefit.

Jesse Channon: scaled operators that continue to remain committed to, you know, staying open and staying present.

Speaker Change: I think the other thing that we're not 100% sure of yet with Colorado, but we probably have a pretty good idea based on last year, is what the outdoor yield in Croptober is going to look like this year moving into the first quarter of next year.

Speaker Change: We believe we'll continue to see some green shoots and some opportunities for expansion on both the retail side, but also in building a healthier and more meaningful wholesale business in the state based on some of that retraction that we're seeing from a total availability point of view.

Aaron Gray: That's a great question for me. Just in terms of Ohio, I understand it's very early days. There's any color you could provide in terms of the first few days of sales, how that's trended versus other markets, and then any potential re-throughs in terms of how well inventory the market is in terms of supply demand, potential supply shortage is coming. I know there was some limitations in terms of the lead up time to adult use sales starting. As well as capacity that folks really have there.

Speaker Change: Okay, got it. Thanks for all that.

Speaker Change: And thank you, and one moment for our next question.

unknown: Second question for me is just one of the sort of top five markets that we haven't talked about a lot on these earnings calls, being Colorado. So given the fact that, you know, the strategy seems really to be to, you know, shore up profitability and sort of, you know, get maybe narrower instead of, you know, increasing breadth. So that's a market that I know has normalized a little bit but historically has been a drag on margins for some of the smaller operators.

unknown: So given that you're fairly scaled up there with, you know, a couple dozen dispensaries, just wondering if you can give an indication of how margins have trended in Colorado, whether it's this quarter or just over, you know, the last number of prints you've had.

Speaker Change: And our next question comes from Scott Fortune from Roth Capital Partners. Your line is now open.

David Hart: It's a good question, Matt. So Colorado has improved for us. I think I'll let Jesse speak to some of the current market dynamics from the pricing and supply and demand perspective, but we've, we, over the last two and a half years, we have invested a lot of time, energy, and capital into improving that business. And we've seen, we've seen a pretty dramatic improvement from our perspective for the last two quarters from a retail perspective. And so we feel much better today about Colorado than we did, say, a year ago, or a year and a half ago. Part of that is the effort that we put into it.

Scott Fortune: Good morning and thanks for the questions. One for me, you've covered a lot, but I just wanted, can you provide a little more color?

David Hart: Thank you. Aaron, good question. We launched with all five locations yesterday. We're not going to share any details, but it was a phenomenal day one for us. I think it was the best opening day for us as a company. I've been with the company for every adult use transition.

Scott Fortune: On the strength of wholesale, obviously up 24%, you know, and 15% of the revenue mix here and nice increasing of gross margins there. But just kind of put in place the initiatives and the third party brands you've added to drive growth improvements there and margins in seven markets. Just kind of step us through how you guys continue to see improvements into the second half. And if you, you know, increase the utilization in regards to wholesale, just kind of step us through kind of the continuing.

Jesse Channon: And this was the biggest by far number of stores complexity and anticipation preparation, but Jesse was in market, so want to want to pass over to Jesse who's there in real time. Hey, good morning, Aaron. Yes, I had the opportunity to be there for open. I was at two of our stores. It was amazing that the team was well prepared. The customers were incredibly excited. I think what we've already seen is an a really strong start to adult use sales there.

Speaker Change: ongoing efforts there an opportunity to kind of contin expand their wholesale

David Hart: Part of it is just what's taking place in the marketplace with respect to consolidation and store closures. I think people have been waiting for this sort of consolidation wave in the marketplace to take place. It's probably taken two years longer than people had anticipated, but it's, you know, it's a market that is, they're very mature, as everybody knows, a very mature adult use market. It's a big market still, even, even off the highs from the pandemic high that we had a number of years ago.

Speaker Change: Yes, do you want to take that one?

Jesse Channon: And obviously more to come right as the regs expand and we see the expansion of both the amount of product the consumers can buy and also the full assortment. We get into pre rolls and combustibles and some other things that weren't yet covered right in the Ohio launch was sort of the legacy medical. But the adult use customers coming in the door. I think we're incredibly excited for for what we're seeing from a capacity and sort of availability and preparedness.

Speaker Change: yeah absolutely so look for from a wholesale point of view

David Hart: So it still represents a big market for us, and there's opportunity to, which we continue to see, take market share. So we're cautiously optimistic about it, but I don't think we would want to characterize it as something that would look and feel like a Virginia market or, you know, a limited license medical program. They just fundamentally look different. But Jesse, maybe you could just give some incremental color on what you're seeing on the ground, because there are some green shoots in terms of what we've been expecting to see for the last few years and are finally starting to see.

Speaker Change: We're happy and we're excited about what we continue to see as far as the productivity of the team, what's taking place there. To one of the first parts of your question, we are structured and organized significantly differently than we were coming into the year with dedicated wholesale marketing as not only an organization, but obviously efforts on a market-to-market basis. We have

Jesse Channon: Yeah, thanks, David. I think from a Colorado point of view, we know that there's probably a bit of another wave of change coming in that market. The early indicators are all there with regard to what's happened to stabilization in pricing from a wholesale point of view, availability of product, and what we're seeing with regard to just chatter about the state of other operators and brands when it comes to, you know, conversations about closing locations or, you know, the typical early indicator of, you know, the online complaining about receivables and paying bills.

Jesse Channon: And so we believe there's probably another wave of sort of either consolidation or retraction in a number of areas of the state in Colorado coming, which I think will benefit scaled operators that continue to remain committed to, you know, staying open and staying present in the communities. So we, I think the other thing that we're not 100% sure of yet with Colorado, but we probably have a pretty good idea based on last year, is what the outdoor yield in October is going to look like this year moving into the first quarter of next year.

Jesse Channon: So we believe we'll continue to see some green shoots and some opportunities for expansion on the retail side, but also in building a healthier and more meaningful wholesale business in the state based on some of that retraction that we're seeing from total availability.

Matt Bottomley: Okay, I got it. Thanks for all that.

Jesse Channon: We were actually well prepared. I think we took the approach of getting out in front of this and ensuring that regardless of when that moving target or date was ultimately going to hit. We were going to be in a position to be able to fully service the stores. We participated in some of the wholesale rush that took place over the last couple of months with some other providers making sure that they had and brands making sure that they had what they needed. But we were well prepared in both our first party brands as well as in stocking up on our partner brands that we were going to be carrying at launch.

Speaker Change: essentially a fully staffed, we've got a couple more potential ads coming, but a fully staffed sales organization that's servicing the country that represents the individual states and regions and ultimately rolls up to sales leadership. We're generating more data and more insights than ever out of that organization to be able to better prepare for everything from expansion in the markets from a garden and a manufacturing point of view.

Scott Fortune: Also, through rationalizing and optimizing the SKUs that

Speaker Change: we are manufacturing and the things that we're making and putting into our first-party brands based on those demand curves and based on what we're seeing from pricing, but also how we think about third-party brands. And third-party brands continue to be a really exciting opportunity for us and a structural decision that we're seeing a lot of.

Jesse Channon: So I think overall Ohio is going to be a great indication of what we're capable of doing as an organization when it comes to a medical to adult use transition moving forward.

Aaron Gray: Okay great here. Thanks very much for the comment.

Aaron Gray: I'll jump back in the queue.

Unknown Executive: And thank you.

Unknown Executive: And one moment for our next question.

Speaker Change: early fruit from and that is that it's increasing the throughput on both the manufactured side but also giving our

Ty Collins: And our next question comes from Ty Collins from a capital you line up now open. Hey morning guys. Thanks for the questions here grads on the quarter. Derek you mentioned in your comments the unabsorbed overhead again. Something you guys have been talking about and working on for a little while here. I'm just wondering if you could maybe update us on which markets are the biggest culprits at this point and what's what's going to drive, and improvement there.

Scott Fortune: Team more to talk about it fills in gaps for the things where we were not historically strong from a first party brand So it's not necessarily cannibalizing the success of the things that we do well

Speaker Change: across the country from the first party brand it's adding more reasons to work with us as a partner and to have larger orders and more accounts at a state level

Speaker Change: So, really like what we're seeing there, those brands contribute everything from marketing and sales assistance to in-state representation when it comes to pop-ups and events.

Ty Collins: Sure, good morning, Ty. What we've said previously is there's a number of markets, there's not overweight in any single one, and we had turned capacity off last year, particularly after the transaction that didn't complete. As Jesse mentioned in Ohio, we were prepared for adult use. That was one of the locations that we turned back on to 100% capacity. It was around the end of the quarter, I ended June, so we didn't really see much of that impact.

Speaker Change: Those things all add up and they ultimately create a much better environment for us to thrive as a wholesale organization.

Speaker Change: So I think what you're seeing in both the top line growth and at the same time the expansion on margin is the building of a real sales organization, real marketing organization for wholesale and a better business there.

Speaker Change: that as we continue to move through the next few quarters i think starts to look and feel a lot more like what you would expect for an operator of our size in the markets that we serve so so far so good caiously optist alot of work to do but i think we're very happy with the early signsthat we're seeingout of the business

Ty Collins: But the other markets, not surprisingly, that we've talked about before, Pennsylvania, that's awaiting adult use as well, New York because of the adult use transition that hasn't fully taken off, but as you've heard, certainly increasing, and then splattering about the markets as well.

Operator: And thank you, and one moment for our next question. And our next question comes from Scott Fortune from Roth Capital Partners. Your line is now open.

Operator: And thank you, and one moment for our next question. And our next question comes from Scott Fortune from Roth Capital Partners. Your line is now open. Good morning, and thank you for joining us today.

Speaker Change: I appreciate that color. Thanks, I'll jump back in the queue.

Scott Fortune: Just kind of step us through how you guys continue to see improvements into the second half and do, you know, increase the utilization in regards to wholesale. Just kind of step us through kind of the ongoing efforts there and the opportunity to kind of continue to expand their wholesale.

Operator: And thank you. And please wait one moment for our next question.

Speaker Change: And thank you, and one moment for our next question.

Scott Fortune: Good morning and thanks for the questions. One for me, you've covered a lot, but I just want, can you provide a little more color on the strength of wholesale, obviously up 24%, you know, and 15% of the revenue mix here and a nice increase in gross margins there, but just kind of put in place the initiatives and the third-party brands you've added to drive growth improvements there and margins in seven markets. Just kind of step us through how you guys continue to see improvements into the second half and do, you know, increasing utilization in regards to wholesale. Just kind of step us through kind of the ongoing efforts there and the opportunity to kind of continue to expand their wholesale.

Jesse Channon: Yeah, absolutely. So, look, from a wholesale point of view, we're happy, and we're excited about what we continue to see as far as the productivity of the team and what's taking place there. To one of the first parts of your question, we are structured and organized significantly differently than we were coming into the year with dedicated wholesale marketing as not only an organization but obviously an effort on a market-to-market basis. We have essentially a fully staffed, we've got a couple more potential ads coming, but a fully staffed sales organization that's servicing the country that represents the individual states and regions and ultimately rolls up to sales leadership.

Jesse Channon: We're generating more data and more insights than ever out of that organization to be able to better prepare for everything from expansion in the markets from a garden and a manufacturing point of view, also through rationalizing and optimizing the SKUs that we are manufacturing and the things that we're making and putting into our first-party brands based on those demand curves and based on what we're seeing from pricing, but also how we think about third And third-party brands continue to be a really exciting opportunity for us and a structural decision that we're seeing a lot of early fruit from, and that is that it's increasing the throughput on both the manufactured side and also giving our team more to talk about.

Speaker Change: And our next question comes from Pablo Zunich from Zunich & Associates. Your line is now open.

Jesse Channon: It fills in gaps for the things where we were not historically strong from a first-party brand. So, it's not necessarily cannibalizing the success of the things that we do well across the country from a first-party brand. It's adding more reasons for them to work with us as a partner and to have larger orders and more accounts at the state level. So, really, like what we're seeing there, those brands contribute everything from marketing and sales assistance to in-state representation when it comes to pop-ups and events.

Jesse Channon: Those things all add up, and they ultimately create a much better environment for us to thrive as a wholesale organization. So, I think what you're seeing in both the top-line growth and, at the same time, the expansion of margin is the building of a real sales organization, a real marketing organization for wholesale, and a better business there that, as we continue to move through the next few quarters, starts to look and feel a lot more like what you would expect for an operator of our size in the markets that we serve. So far, so good. Cautiously optimistic. Still a lot of work to do, but I think we're very happy with the early signs that we're seeing from the business.

Scott Fortune: I appreciate that color. Thanks. I'll jump back in the queue.

David Hart: Okay, great, that's helpful. And then, thinking on New York, I guess, I'm curious to hear, I suppose, the rationale behind divesting those retail assets when it sounds like the market is kind of starting to come back to life with some of the illicit enforcement going on. And maybe you could also touch on what kind of wholesale penetration you have there among illegal retailers, and I just want to get a sense of the wholesale opportunity there is that market grows.

Marcus Lam: Hi, good morning. This is Marcus Lam on for Pablo. Today, we have two questions. The first one is regarding the sale of the Virginia license. Could you explain the criteria you use to determine which of the two licenses to sell?

Operator: And thank you. And one moment for our next question. And our next question comes from Pablo Zunich from Zunich.

Marcus Lam: Yeah, this is David. I'll take that question. You know, we have, we have two, two licenses, as you just highlighted, that are

Jesse Channon: It's high, this is David. I'll take the first part, but then I'll hand the whole step question over to Jesse. With respect to the two locations we closed, we had lease aspirations for two of our locations. Those locations were not commercially viable in our opinion for adult use going forward. So we are looking for new locations for both of this. One is one was in Manhattan, and the other was in Rochester.

David Hart: that are geographically ring-fenced to an HSA, both of which are fantastic businesses, both have great opportunities on a go-forward basis. So the criteria was the interest level from the counterparty in a negotiated transaction.

Operator: And thank you. And one moment for our next question. And our next question comes from Pablo Zunich from Zunich & Associates. Your line is now open. Hi, good morning. This is Marcus Lam, on behalf of Pablo. Today we have two questions. The first one is regarding the sale of the Virgin Islands.

David Hart: Yeah, this is David. I'll take that question. You know, we have two licenses, as you just highlighted, that are geographically ring-fenced to an HSA, both of which are fantastic businesses, both have great opportunities on a go-forward basis. So the criteria was the interest level from the counterparty and the negotiated transaction. Thank you.

Jesse Channon: We still have two open one out in Long Island in our Brooklyn location. The Brooklyn location was the facility that was approved, authorized for us to convert to adult use. We've not elected to move forward with that yet, but we are, we've been planning to be fully opened in all of our dispensaries over time, but we had the opportunity to exit based on these two locations that were just not commercially viable for adult use.

Speaker Change: Thank you. And my second question is, in the case of your Pennsylvania business, can you add more stores or are you all at capacity?

David Hart: And my second question is, in the case of your Pennsylvania business, can you add more stores or are you all at capacity? So we have one right now in the medical program in Pennsylvania. We have one license, which is in the Northeast section of Pennsylvania that allows us to operate three doors, which are all open and operational. That's what we're allowed to have with the current license portfolio we have in Pennsylvania.

Unknown Executive: So we have one right now in the medical program in Pennsylvania; we have one license, which is in the Northeast section of Pennsylvania that allows us to operate three doors, which are all open and operational. That's what we're allowed to have with the current license portfolio we have in Pennsylvania.

Speaker Change: so we have one right now in the medical program pennsylvania we have one license which is in in with these section of ennsylvania allows us to operate three doers which are all open an operational thats that's what we'reallowed have with thecurrent license porto we have ennsylania

Jesse Channon: Jesse, you want to cover the whole fail sign? Yeah, thanks, David. So from a wholesale point of view, we have continued to expand significantly, I don't think we've released anything definitively with regards to what the penetration looks like in any individual market from an account sort of point of view, but we have continued to expand significantly in New York. I think that's an exciting opportunity for us moving forward. We are in the process of expanding our capacity to be able to better serve.

David Hart: And thank you. And I'm showing no further questions. I would now like to pass the call back to David Hart for final comments.

Marcus Lam: Thank you. That's it for me.

Speaker Change: and thank you

Marcus Lam: And I'm showing no further questions. I would now like to pass the call back to David Hart for final comments.

David Hart: Thanks, everybody. Look forward to chatting again in November. If there's any follow-up questions, you know how to reach us. Thanks very much.

David Hart: Thanks, everybody. Look forward to chatting again in November . If there's any follow-up questions, you know how to reach us. Thanks very much.

Operator: This concludes today's call. Thank you for participating. You may now disconnect.

Speaker Change: this concludes today's call thank you participating you may now disconnect

Jesse Channon: We have a high inbound demand right now from a wholesale point of view in that market, and we've been very conservative and data driven with regards to expansion in the gardens in a number of states, New York being one of them. So we did want to see some of those health indicators before we started aggressively expanding for the wholesale business there. I think we've seen what we need to to know that we can now grow into servicing that market from a less conservative point of view.

Jesse Channon: I think you'll see a continued expansion both from a total account point of view as well as a total sort of biomass point of view coming from us into that market over the coming quarters. We're excited by what we see, right? I think to David's point in the commentary to open the call, the June reported numbers, if I'm not mistaken, put it you know over an $800 million run rate for the legal business in New York from an annualized and we can see we see that continuing to grow as enforcement continues to happen and as we see the opening of news stores.

Jesse Channon: So we're well well positioned. We have a team that's fully staffed there both from a wholesale marketing and a wholesale sales rep point of view. So they're in market engaged with these customers and now it's a matter of ensuring that we have the the proper amount of product to service those accounts, which is what we're growing into as we speak.

Ty Collins: Great, thanks guys. And thank you.

Frederico Gomes: And one moment for our next question. And a next question comes from Frederico Gomes from ATB Capital Market. Your line is not open.

Jesse Channon: And morning, thanks for taking my questions. Just the first question on New Jersey, I guess, wholesale. Just comment on the pricing environment there and your penetration currently in that state. Jesse, you want to take that one? Absolutely. Hey, good morning, Fred. So New Jersey continues to be a really impactful business for us from a wholesale point of view. We've spoken in the past about how if we could, if we could copy paste what we're doing from an execution point of view in that market, I think we'd be incredibly excited across the country.

Jesse Channon: And it is acting as sort of a template from a pricing point of view. I think other operators as they've reported have spoken to how happy everyone is with where pricing currently sits in New Jersey and the lack of compression and the lack of sort of velocity in that compression that we've seen as that market continues to mature. We're still seeing significant premiums on both bulk trades and finish good trades inside of the wholesale ecosystem.

Jesse Channon: New Jersey is one of the few markets for us portfolio wide, where we continue to have large enterprise supply agreements from a bulk point of view to provide a biomass to both other operators and brands as a significant portion of that business. We've been very transparent about moving the mix into finished goods, which has led to the significant margin expansion over the past two quarters in that wholesale business. New Jersey is one of those stories, though, where the pricing is still so advantageous and we're very fortunate to have the scale in that market from a garden point of view and the testing and quality of flour coming out of it that we do.

Jesse Channon: So that continues to remain a piece of the business there and obviously will adapt as there's a change in the environment with regards to the pricing there. So I think, you know, long story short, it's one of our best markets with regards to total percentage of penetration both on the retail side as well as the amount of collaborative work that we're doing with other operators and brands from a supply agreement point of view. And pricing has been favorable for the operators from a compression point of view versus other markets that we've seen at this point in their maturity and adult views.

David Hart: Thank you for that. And then just thinking about, I guess, your footprint currently and potential for growth, I guess. And you mentioned Ohio, in terms of potentially adding stores there. Are there any other markets here where you're thinking about expanding or where you think there is an opportunity to expand from a retail perspective? I'll take that one further. If we do have three more doors that we plan to open in Ohio through the lottery process in between now and at some point in 2025, we have one remaining stores to open in our Richmond HSA down in Virginia.

David Hart: We highlighted, I think, in our opening statement that we plan to open our last remaining dispensary in New Jersey, our third location by the end of the end of the year. And in New York, we have to find two new locations as we think about the improving environment for retail and adult use retail presence for us in the New York market. Outside of that, we just had the Ohio conversion. And now we're looking at the Delaware market turning adult use here in short order.

David Hart: That's the next one on our list. And then followed by Virginia later in probably in early 2026. But from a CAPEX perspective, we're basically fully built in anticipation of this conversion, this converging adult use markets. And Derek mentioned earlier the adult use convergence opportunity in Pennsylvania where we're already built. So we're CAPEX light between here and the conversions and the organic growth that we think is ahead of us and portfolio. The remaining portfolio.

Frederico Gomes: Thank you very much for the call.

Unknown Executive: And thank you.

Matt Bottomley: And one moment for our next question. And our next question comes from Matt Bottomley from Cannacore Genuity. Your line is now open.

Matt Bottomley: Good morning everyone. Thanks for all the colors so far. I just wanted to go back to some of the changes in the streamlining initiatives. I understand that you can't give specifics, you know, given that there are some moving parts here and some of them haven't closed. So I'm not looking for specific numbers, but there has been good, you know, information that's been put out there for you guys and then just from some of the transaction details we've seen that are public.

Matt Bottomley: So I know Florida, I think he said was less than 5% of your revenues. We can look at Arizona for sort of an average, you know, store contribution based on publicly available information that comes from the state. So I think the missing piece that would be helpful for us is maybe if you don't talk about the assets specifically, but maybe just the Virginia market as a whole. Is there any indication you can give us as in terms of growth rates year over year?

Matt Bottomley: Or maybe what the overall TAM opportunity is in terms of medical, something that doesn't talk about the assets specifically, but maybe a little more macro just to get some color on exactly what's going on in that space.

David Hart: And that this is David. I think at this point, we're going to just we're going to probably wait for us to close the transaction. And we'll provide incremental data around the bill forward P and L profile for us either between now and the end of the quarter or at our next quarter of the earnings at this point.

David Hart: Okay, Camp Bloom for trying got it. And the second question for me is just one of the sort of top five markets that we haven't talked about a lot on these earnings calls being Colorado. So given the fact that, you know, the strategy seems really to be, you know, short profitability and sort of, you know, get maybe narrower. Instead of, you know, increasing breadth. So that's a market that I know has normalized a little bit, but historically has been a drag on margins for some of the smaller operators.

David Hart: So given that you're fairly scaled up there with, you know, a couple dozen dispensaries. Just wanting to give indication on how margins have trended in Colorado, whether it's this quarter or just over, you know, the last, you know, number of prints you've had.

David Hart: It's a good question, Matt. So Colorado has improved for us. I think I'll let you speak to some of the current market dynamics from the pricing and supply demand perspective. But we've, we over the last two and a half years, we have invested a lot of time and energy and capital into improving that business. And we've seen, we've seen the pretty dramatic improvement from our perspectives the last two quarters from a retail perspective.

David Hart: And so we feel much better today about Colorado than we did say a year ago, year and a half ago. Part of that is the effort that we've put into it. Part of it is just what's taking place in the marketplace with respect to consolidation and store closures. I think people have been waiting for this sort of consolidation wave in the marketplace to take place. It's probably taken two years longer than people anticipated.

David Hart: But it's, you know, it's a market that is the very mature. There has been a very mature adult use market. It's a big market still, even, even all the highs from the pandemic high that we had a number of years ago. So it represents a big market for us. And there's opportunity to, which we continue to see to take market share. So we're cautiously optimistic about it. But I don't think we would want to characterize it as something that would look and feel like a Virginia market or, you know, limited license medical program.

Jesse Channon: And they just fundamentally look different, but just maybe you just give some incremental color on what you're seeing on the ground. There are some green shoots in terms of what we've expecting. We've been expecting to see for the last few years and finally starting, in Safe Place.

Jesse Channon: Yeah, thanks, David. I think from a Colorado point of view, we know that there's probably a bit of another wave of change coming in that market. The early indicators are all there with regards to what's happened on stabilization in pricing from a wholesale point of view, availability of product, what we're seeing with regards to just chatter in the state of other operators and brands when it comes to conversations around closing locations or the typical early indicator of the online complaining about receivables and paying bills.

Jesse Channon: So we believe there's probably another wave of either consolidation or retraction on a number of areas of the state and Colorado coming, which I think will benefit scaled operators that continue to remain committed to, you know, staying open and staying present in the communities. So we, I think the other thing that we're not 100% sure of yet with Colorado, but we probably have a pretty good idea based on last year is what the outdoor yield in Croptober is going to look like this year moving into the first quarter next year.

Jesse Channon: So we believe we'll continue to see some green shoots and some opportunities for expansion on both the retail side, but also in building a healthier and more meaningful wholesale business in the state based on some of that retraction that we're seeing from a total availability point of view.

Matt Bottomley: Okay, got it. Thanks for all that.

Unknown Executive: And thank you.

Scott Fortune: And one moment for our next question. And our next question comes from Scott Fortune from Roth Capital Partners. Elana's not open.

Scott Fortune: Good morning and thanks for the questions. One for me, you've covered a lot, but I just want to provide a little more color on the strength of wholesale, obviously up 24%. You know, 15% of the revenue mix here and nice increasing of gross margins there, but just kind of putting in place the initiatives and the third party brand you've added to drive growth improvements there and margins and seven markets, just kind of step us through how you guys continue to see improvements into the second half and the increasing utilization in regards to wholesale, just kind of step us through kind of the continuing ongoing efforts there and the opportunity to kind of continue to expand their wholesale.

Scott Fortune: Yes, you want to take that one? Yeah, absolutely. So look, from a wholesale point of view, we're happy and we're excited about what we continue to see as far as the productivity of the team was taking place there. To one of the first parts of your question, we are structured and organized significantly differently than we were coming into the year with dedicated wholesale marketing as not only an organization, but obviously efforts on the market to market basis.

Scott Fortune: We have essentially a fully staffed. We've got a couple more potential ads coming, but a fully staffed sales organization that's servicing the country that represents the individual states and regions and ultimately rolls up to sales readership. We're more insight than ever out of that organization to be able to better prepare for everything from expansion in the markets from a garden and the manufacturing point of view. Also through rationalizing and optimizing the skews that we are manufacturing and the things that we're making and putting into our first party brands based on those demand curves and based on what we're seeing from pricing, but also how we think about third party brands.

Scott Fortune: And third party brands continue to be a really exciting opportunity for us and a structural decision that we're seeing a lot of early fruit from and that is that it's increasing the throughput on both the manufactured side but also giving our team more to talk about. It fills in gaps for the things where we were not historically strong from a first party brand. So it's not necessarily cannibalizing the success of the things that we do well across the country from a first party brand.

Scott Fortune: It's adding more reasons to work with us as a partner and to have larger orders and more accounts at a state level. So really like what we're seeing there, those brands contribute everything from marketing and sales assistance to in state representation when it comes to pop ups and events. Those things all add up and they ultimately create a much better environment for us to thrive as a wholesale organization. So I think what you're seeing in both the top line growth and at the same time the expansion on margin is the building of a real sales organization, real marketing organization for wholesale and a better business there that as we continue to move through the next few quarters, I think starts to look and feel a lot more like what you would expect for an operator of our size in the markets that we serve.

Scott Fortune: So so far so good, you know, cautiously optimistic still a lot of work to do, but I think we're very happy with the early signs that we're seeing out of this. I appreciate that color. Thanks, I'll jump back in the queue. And thank you, and one moment for our next question.

Pablo Zunic: And our next question comes from Pablo Zunic, from Zunic and Associates. Your line is now open.

David Hart: Hi, good morning. This is Marcus Lam on for Pablo. Today we have two questions. The first one is regarding to fill the Virginia license. Could you explain the criteria you you to determine which of the two licenses to sell? Yeah, this is David. I'll take that question. You know, we have two two licenses as you highlighted that are that are geographically ring fence to an HSA, both of which are fantastic businesses, both have great opportunities on a go for basis. So the criteria was the interest level from the town party and negotiated transaction.

Unknown Executive: Thank you.

David Hart: And my second question is, can you, sorry, in the case of your Pennsylvania business, can you add more stores? Are you all a capacity? So we have one right now in the medical program in Pennsylvania. We have one license, which is in the Northeast section of Pennsylvania that allows us to operate three doors, which are all open and operational. That's that's what we're allowed to have with the current license portfolio we have in Pennsylvania.

Unknown Executive: Thank you.

Unknown Executive: That's it for me. And thank you.

Unknown Executive: And I'm showing no further questions.

David Hart: I would not like to pass the call back to David Hart for final comments. Thanks, everybody. Look forward to chatting again in November.

Unknown Executive: There's any questions you know how to reach us. Thanks very much.

Unknown Executive: This concludes today's call. Thanks for participating.

Unknown Executive: You may now disconnect. Thank you.

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