Q2 2024 Cresco Labs Inc Earnings Call

Remington Smith: My first question regards your gross margin. I remain healthy with four curers or quarters, about 50% on 52% in the queue. I know you kind of touched on that you expected to remain around 50% in 2H, but just seeing if you could provide some more color on if there's any additional margin improvements. I mean, you said you made a number of efficiency gains, you had a little bit of benefit from Ohio adult use, but there seemed to be some pricing pressure in the market. Just wanted to see if you could provide a little bit more color on the 52% gross margin this quarter and how you think about it in the back half of the day.

good day and welcome to crasco labs second quarter two thousand and twenty four earnings conference call

Speaker Change: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.

Operator: To ask a question, you may press the star key, then 1 on your touch-tone phone. To withdraw your question, please press star 1 again. Please note that this event is being recorded.

Speaker Change: To ask a question, you may press the star key, then 1 on your touch-tone phone. To withdraw your question, please press star 1 again. Please note this event is being recorded.

TJ Cole: I would now like to turn the call over to TJ Cole, Senior Vice President, Corporate Development and Investor Relations for Cresco Labs. Please go ahead.

TJ Cole: Thank you. Good morning and welcome to Cresco Labs second quarter 2024 earnings conference call.

Speaker Change: on the call today we haveachieved executive officer and co-founder charles boxte chief financial officer dennissollais and president greg bobuer who will be available for the q name

Unknown Executive: Prior to this call, we issued our second quarter earnings press release, which has been filed on CDAR and is available on our investor relations website.

Speaker Change: prior to this call we assusure second quarter earnings press release which has been filent cededar and is available on our investor relationations website

Speaker Change: These preliminary results for the second quarter of 2024 are provided prior to completion of all internal and external reviews, and therefore are subject to adjustment until the filing of the company's quarterly financial statements.

Speaker Change: we plan to file our corresponding financial statements and mdna for the quarter into june thirtieth two y four on cedar and after

Speaker Change: Before we begin, I want to remind you that statements made on today's call may contain forward-looking information. Actual results may differ materially.

Speaker Change: The risks, uncertainties, and other factors that could influence actual results are described in our earnings press release and in the MD&A file with the securities regulators. This call also contains non-GAAP measures, also outlined in our earnings press release and in the MD&A file with the securities regulators.

Speaker Change: Please also note that all financial information on today's call is presented in U.S. dollars and all interim financial information is unaudited. With that, I'll turn the call over to Charlie.

Charles Bachtell: Good morning, this is Charlie. I'll start, and then Dennis will add some more color. But you know, really, really pleased with the team's execution in the quarter and managing the puts and takes that are inherent across the industry and our footprints. And, and so it's really active management of the business that produces the gross profit margins that you've been seeing from us over the last few quarters. And it's the same approach that we'll take in the quarters ahead.

Dennis Olis: There are, as we said in the prepared remarks, certain levers that really sort of drive margin profiles, including state mix, product mix, etc. We're excited about Ohio's adult use program launch on Tuesday. We know that that'll be a driver of our business for quarters in the years ahead. And as far as pricing pressure, I think you mentioned pricing pressure in Ohio, specifically. I think that, typically, what we see from a transition from medical to adult use follows that same trend. But when adult use launches, it tends to, you see an increase in pricing for a period of time.

Charlie: good morning everyone and thank you for joining us on the call today i'm pleased to walk you through our q two relts and demonstrate the sustainability of the improvements we've made to the business over the past year

Charlie: we entered this quarter building on a strong foundation we've developed and with growing momentum in the industry

Charles Bachtell: The DEA's comment period on rescheduling recently closed, with roughly 92% of the over 40,000 comments submitted in overwhelming support of reclassifying cannabis as a Schedule III substance or declassifying cannabis entirely. Cresco Labs is creating the financial profile and perfecting the playbook we need to win. We're strengthening our positions in Ohio, Pennsylvania, and Florida, the three largest likely near-term catalysts in our industry that will drive significant growth in the years to come. I also can't say enough about the Cresco team, who manages all the complexities of this conversion with grace and expertise.

Speaker Change: The DEA's comment period on rescheduling recently closed with roughly 92% of the over 40,000 comments submitted in overwhelming support of reclassifying cannabis to a Schedule 3 substance or declassifying cannabis entirely.

Speaker Change: recent polls also show energy swelling around florida amendment three initiative to legalize canabis for adult use this november

Speaker Change: As the pace of reform challenges even the most patient of us, it's important for all stakeholders to remember that cannabis reform consistently pulls higher than any candidate in any election, and the public has made it clear that it's time for change. Reform is imminent, and we are ready.

Remington Smith: Yeah, just building on what Charlie said, we saw some favorability in the state mix in Q2 that had a favorable impact on our margins in the quarter. So, again, Florida was very strong for us in Q2, and that helped drive margins up. With the price pressures that we're seeing in the marketplace, that does put some pressure on margins overall. I think we're doing, we've done a great job of offsetting that with some efficiencies in our cultivation and manufacturing facilities.

Speaker Change: our q two results show how sstrengthening our core and emphasizing free cash flow are laying the groundwork for profitable growth and strategic positioning for the transformational catalysts ahead

Remington Smith: As we look at the second half of the year, and as we see some growth in Ohio, particularly in the fourth quarter with adult use, that will have a slight negative impact on margins that will get us back, we think, closer to the 50% margin as we exit the year until we get our facilities in Ohio up to speed and get them to our average margin performance.

Speaker Change: In the quarter, we generated $184 million in revenue at a 52% adjusted gross profit margin and a 29% adjusted EBITDA margin.

Remington Smith: All right, that was really helpful. And then my second question, in regards to New York, I know it's a market you've been constructive in historically and want to continue to be.

Remington Smith: A little bit of hurdles in terms of the illicit market initially, actions taken by the state against the illicit stores, coupled with a material amount of legal store openings really helped drive some growth in the market. Just wanted to get your take on how you're viewing the market, particularly on the wholesale side, and then potentially allocating some capex there.

Charles Bachtell: So, you know, our position on New York has not changed from prior calls. We're still optimistic that New York is going to be a large market going forward. But the start to the legal program there has been challenging. And, as we're looking at our total footprint and being super diligent with the allocation of capital, there are other opportunities in our footprint and in our business. When you compare the New York opportunity today to the other opportunities that we have in trying to drive the highest ROI in a reasonable period of time, it's a challenge.

Speaker Change: year-over-year we generated a five hundred and sixty-five basis point improvement on our adjusted gross profit margin and removed approximately thirty-four million dollars in annualized the just est gna spent

Speaker Change: Our consistent focus on margin expansion enabled us to deliver $54 million in adjusted EBITDA up $13 million year-over-year. And finally, we generated $54 million in operating cash flow year-to-date, which is $32 million more than the first half of last year.

Speaker Change: this combined with our revised tax strategy that denn cover later in the call will allow us to continue to strengthen our balance sheet and enabableled strategic capital deployment to support future growth

Charles Bachtell: So we're encouraged by what we're seeing there. We do think, long term, New York is going to be a big, robust program that we'll be happy to be a part of. But, in the interim, and in the immediate term, there are other opportunities that we're pushing forward with.

Speaker Change: Cresco Labs is creating the financial profile and perfecting the playbook we need to win.

Speaker Change: Our branded product and retail portfolio performance are evidence of our differentiated capabilities.

Speaker Change: we consistently outperform our markets maintaining leading share positions in the largest markets like illinois pennsylvania massachusetts

Speaker Change: and gaining share in some of the most competitive markets like Florida. Our unique skill set and financial discipline have enabled us to drive scale and improve margins as we look towards new markets to replicate our winning strategy.

Remington Smith: All right, that's all for me. I'll hop back in, too.

Speaker Change: now i'm going to share more on the three pillars we'reexecuting against to create the strongest and most of valuable chcressco labs for the years to come

Operator: Your next question comes from the line of Scott Fortune with Roth Capital Partners. Please go ahead.

Speaker Change: Number one, we're ensuring we have the most strategic footprint.

Speaker Change: We're strengthening our positions in Ohio, Pennsylvania, and Florida, the three largest likely near-term catalysts in our industry that'll drive significant growth in the years to come.

Nick: Yeah, good morning. This is Nick on for Scott.

Nick: Congratulations on a good quarter here. My first question for you is just on product mix. I know it differs by state, but can you give us just a general sense of what you saw from the consumer in the quarter, given the potentially kind of tempered macro backdrop here? And just wondering if that translated into any changes in spending behavior and how that impacted your mix between the good, better, and best categories. Thank you.

Speaker Change: adult use saled offially launched earlier this week inohio and it's been energizing to be a part of another major milestone for cannabis the seven's most populated state in the country will be another example of a responsible respectable and robust legal cannabis program

Speaker Change: I want to thank Ohio's Division of Cannabis Control for working so hard to design a program that's going to bring incredible value to their state and opportunities for their residents.

Speaker Change: i also can't say enough about the crerescoteam manages all the complexities of this conversion with grace and expertise

Speaker Change: We're already seeing some of the impact from recent cultivation upgrades we've made in Ohio, including a 26% increase in yield per square foot and a 23% increase in average potency as we drive full utilization of our canopy.

Speaker Change: This will allow us to meet the increased adult use demand while still maintaining our existing supply to serve medical patients and wholesale customers.

Speaker Change: Our next project is to expand Sunnyside's reach by opening our three additional dispensaries in Ohio. Kudos to our real estate team, who have already identified sites that will complement our existing leading retail portfolio in the state.

Speaker Change: inpennsylvania there's a lot of momentumbehind bipartof an adult use legislation and we see a path legalization as lawmakers we can be this fall and the meantime we're deepening our number one position in the state through smart capital allocation

Unknown Executive: In the meantime, we're deepening our number one position in the state through smart capital allocation. We're focused on making smart investments in these markets, where our strong retail and wholesale capabilities could add value quickly. Over the last few quarters, we've used the capital efficient approach to add more sunny side dispensaries and increase cultivation capacity.

Speaker Change: in addition of the upgrades to cultivation we talked about last quarter we just expanded our dispensary operations by acquiring two existing locations and the ability to open one additional dispensary

Speaker Change: With a nominal impact in Q2, this is an incremental, non-material investment that will have a high ROI. We see a clear pathway to unlock strategic value as we convert these stores to the Sunnyside platform, optimize operations, and ramp up on potential adult use legalization.

Speaker Change: in florida we've more than doubled revenue year-over-year as we continue flexing every muscle to improve edible and vap throughput increased pottency and maximize cultivation yieldals

Speaker Change: We're currently executing an expansion plan to support the growing demand for our products under the state's medical program with additional plans that we can turn on if the adult use is legalized in November .

Speaker Change: we're focused on making smart investments in these markets where our strong retail and wholesale capabilities could add value quickly

Speaker Change: Over the last few quarters, we've used a capital-efficient approach to add more Sunnyside dispensaries and increase cultivation capacity. We're preparing to scale up strategically so that we're capturing maximum share while generating high returns on our investments, regardless of where each of these state adult use regulations land.

Unknown Executive: We're preparing to scale up strategically so that we're capturing maximum share while generating high returns on our investments, regardless of where each of these state adult use regulations lands. Number two, we remain the leader in branded wholesale products. As we discussed last quarter, continuous improvement and portfolio evaluation are foundational to that playbook. We're also creating tailored wholesale plans to adapt to continued retail fragmentation across the industry. In markets like Massachusetts, we're exercising discipline and finding the right retail partners to invest in going deeper with our highest value accounts and reducing exposure to non-performing accounts to preserve top line while also protecting margin.

Speaker Change: Number two, we remain the leader in branded wholesale products.

Speaker Change: We continue perfecting our branded product playbook, enabling us to beat out competitors and hold the number one overall share position in Illinois, Pennsylvania, and Massachusetts. For BDSA, we also have top portfolio positions nationally in branded flour, concentrates, vapes, and edibles.

Speaker Change: As we discussed last quarter, continuous improvement and portfolio evaluation are foundational to that playbook. For instance, to maintain the strong growth we've seen in the pre-roll category, we've been diligently testing new processes and technology to increase productivity and margins.

Speaker Change: the early results are promising with a ten-to x increase in throughput this is a good example of how 're veraging our scale to test new processes in one state before rolling them out across our footprint to capture the benefits of large buying power

Speaker Change: we're also creating tailored wholesale plans to adapt to continued retail fragmentation across the industry

Speaker Change: In markets like Massachusetts, we're exercising discipline and finding the right retail partners to invest in, going deeper with our highest value accounts, while reducing exposure to non-performing accounts to preserve top line while also protecting margin.

Speaker Change: In markets like Illinois, we're getting our products on every new shelf and expanding our points of distribution, while keeping our menu depth and introducing new innovations in forms, flavors, and strains.

Unknown Executive: Our focus on providing innovative products at the highest quality, while constantly finding efficiencies in our cost structure, continues to deliver one of the strongest cannabis portfolios in the industry. We're also constantly evolving our approach to customer engagement. We're leveraging the Sunnyside dot shop platform, customer segmentation, and purchase history to create targeted high ROI campaigns. In trialing this method, customers we've targeted are making more repeat purchases and have increased average monthly spending by 20%.

Speaker Change: Our focus on providing innovative products at the highest quality, while constantly finding efficiencies in our cost structure, continues to deliver one of the strongest cannabis portfolios in the industry.

Speaker Change: And number three, we're building a highly productive retail portfolio in the most strategic states.

Speaker Change: In Q2, we increased our index to fair share across our markets, with Sunnyside performing 36% better than comparable dispensaries.

Speaker Change: in fact we're out performing average fair share in almost all of our markets with our fair share in florida consistently making gains and growing more competitive quarter

Speaker Change: We're more than twice as productive in some of our most important states, and we're expecting even more fair share improvement across our footprint in the quarters ahead.

Speaker Change: Last quarter we talked about how our tech capabilities contribute to our market-winning results, but in-store optimization is another important lever we pull. We continue to refine our assortment and display of accessories and non-canvas products, ensuring we're meeting consumer trends while maximizing every inch of our dispensaries.

Speaker Change: Over the last year, we've increased non-cannabis revenue in our stores by 9%.

Speaker Change: we're also constantly evolving our approach to customer engagement when complementing maybee-commerce tactics covered last quarter with unique push marketing strategy releveraging the sunnyside dot shop platform customer segmentation and purchase history to create targeted high roi campaigns

Speaker Change: In trialing this method, customers we've targeted are making more repeat purchases and have increased average monthly spending by 20%.

Speaker Change: We have a proven track record of generating above-average retail productivity across our markets thanks to repeatable operating procedures, a proprietary tech stack, and the team's collective dedication to continuous improvement.

Speaker Change: These capabilities will continue to be invaluable as we ramp up additional dispensaries to meet Sunnyside standards in the months ahead.

Gregory Butler: And so we'll have Greg start with this one.

Speaker Change: in closing our strategy is simple win in strategic markets with a brand portfolio consumers love and best-in-class retail operations

Speaker Change: And we'll continue making smart investments to strategically target new growth markets where these established capabilities will help us generate premium returns.

ddennis: with that i'll turn it over to ddennis to provide more details on our q two performance

Unknown Executive: Thank you, Charlie, and good morning, everyone. We continue to demonstrate that the changes we made in the last year to improve our profitability are sustainable. The increased cash flow we're generating, along with the normalized taxes, will allow us to strengthen our balance sheet, increase our footprint, and invest in strategic growth opportunities to drive our results in the years to come. In the quarter, we generated $184 million in revenue while generating more gross profit.

Gregory Butler: Morning, Nick. You know, in general, for the major trends across states, and I'll start by saying each state does have a little bit of nuance that makes it unique, but on a macro level for trends, it's not surprising what you are seeing is shoppers are looking for value across all categories, all consumer categories, that includes cannabis. We're seeing growth in our value formats high. We're seeing growth in value formats across the categories as consumers look to find ways to save money.

Gregory Butler: It doesn't mean, though, that just value segments are growing; we're actually seeing higher price, more premium products, especially interesting products that are different and new, are able to generate and pull dollars from consumers' wallets and drive some excitement. But I think the macro trend is that there is a value shopper out there, things are expensive, and as more cannabis becomes available at lower prices and better product quality, it becomes a competitive offering for them.

ddennis: Thank you, Charlie, and good morning everyone. We continue to demonstrate that the changes we've made in the last year in our improved profitability are sustainable.

Dennis: The increased cash flow we're generating along with the normalized taxes will allow us to strengthen our balance sheet, increase our footprint, and invest in strategic growth opportunities to drive our results in the years to come.

Speaker Change: In the quarter, we generated $184 million in revenue while generating more gross profit.

Unknown Executive: Our operations team continues to impress, finding incremental improvements to lower the cost of goods and increase gross profit, even in an environment that is inflationary for costs and deflationary for cannabis prices. That represents a 565 basis point improvement year over year.

Unknown Executive: our operations team continued to impress funding incremental improvements to lower cost of goods and increased gross profit even in an environment that is inflationary for costs and deflationary for cannabis pricing

Unknown Executive: we increased absolute adjusted gross profit to ninety-seven million dollars in adjusted gross margin of fifty-two percent that represent a five hundred and sixty-five basis point improvement year-over-year

Unknown Executive: We've continued to maintain strong cost controls across the organization with adjusted SG&A as a percentage of revenue at 29%, a 229 basis point improvement from last year. With Ohio going adult use and the potential conversions in Florida and Pennsylvania, we can support much higher revenue and generate significant operating leverage on our current cost structure. In Q2, we generated $18 million in operating cash flow and $11 million in positive free cash flow as we paid our semi-annual interest payment.

ddennis: We've continued to maintain strong cost controls across the organization with adjusted SG&A as a percentage of revenue at 29%, a 229 basis point improvement from last year.

ddennis: We had a small increase sequentially in absolute adjusted SG&A to support and maximize the opportunity of the adult use conversion in Ohio and the two additional stores acquired in Pennsylvania.

Speaker Change: q two adjusted ebitda was fifty four milliondollars or twenty nine percent of revenue up thirty three percent year-over-year this is our third consecutive quarter generating over fifty million dollars of wouldadjusted ebit a

This consistency demonstrates the sustainability of the actions we took last year.

Unknown Executive: Our Ohio going adult use and the potential conversions in Florida and Pennsylvania, we can support much higher revenue and generate significant operating leverage on our current cost structure.

Unknown Executive: in q two we generated eighteen million dollars in operating cash flow and eleven million dollars in positive free cash flow as we paid our semiannual interest payments

Speaker Change: at fifty -four million dollars in the first six monthsof the year we've generated more than double the amount of cash we did the same period last year

Unknown Executive: We're going to put this cash to use by strengthening the balance sheet, investing in our core growth states, and pursuing strategic growth opportunities.

Unknown Executive: We spent $6 million on CapEx during Q2. We expect to spend between $40 to $60 million for the full year, inclusive of upgrades already made to our Ohio cultivation and production facility, as well as expansion in Pennsylvania and Florida in advance of potential adult use. We expect Q3 revenue to be relatively flat compared to Q2 due to the late start of adult use in Ohio and limited initial incremental supply and new form factors.

Unknown Executive: We spent $6 million on CapEx during Q2. We expect to spend between $40 to $60 million for the full year, inclusive of upgrades already made to our Ohio cultivation and production facility, as well as expansion in Pennsylvania and Florida in advance of potential adult use.

Unknown Executive: 2024 has developed much as we expected, and we are maintaining the expectations we set on our Q4 call and reiterated in Q1.

Unknown Executive: We expect Q3 revenue to be relatively flat compared to Q2 with the late start of adult use in Ohio and limited initial incremental supply and new form factors.

Unknown Executive: We're looking forward to Ohio's adult use conversion and the anticipated conversion in Florida and Pennsylvania to generate significant year-over-year growth in both 2025 and 2026. Strategically, we are targeting to keep gross margins around 50% as we believe that's an appropriate operating structure for our business. On a quarterly basis, like in Q2, Q4 will have lower cash flow because of our semi-annual interest payments. Regarding taxes, we intend to file as a normal business for 2023 and beyond.

Unknown Executive: We expect it to start contributing growth in Q4.

Unknown Executive: we're looking forwardto ohio adult use conversion and the anticipated conversion in florida and pennsylvania to generate significant year-over-year growth in both two thousand and twenty five and two thousand and twenty six

Unknown Executive: Strategically, we are targeting to keep gross margins around 50% as we believe that's an appropriate operating structure for our business.

Unknown Executive: Having said that, there can't be quarterly variability driven by price pressures, revenue composition by state, and portfolio mix.

Unknown Executive: we expect to maintain suns percentage of revenue consistent with q two

Unknown Executive: As we've talked about previously and delivered through the first half of the year, operating cash flow will be significantly higher than last year.

Unknown Executive: On a quarterly basis, like in Q2, Q4 will have lower cash flow because of our semi-annual interest payments.

Unknown Executive: regarding taxes we intend to file as a normal business for two thousand and twenty three and beyond

Unknown Executive: this new position will result in estimated tax savings up sixty-five million dollars in two thousand and twenty four directly impacting our cash flow and bolstering our balance sheet

Speaker Change: for the time being a corresponding on certain tax position a utp related to these tax savings will be recorded on the balance sheet

Speaker Change: we have worked closely with our expert advisers to be incredibly thoughtful and how we design this approach or' comfortable with our readun section twohundred y and its implications

Unknown Executive: As a result of the new tax position and our corporate structure, a step up to fair market value in the company's tax receivable agreement liability has been reported in our financial statements.

Unknown Executive: Most of the assets being stepped up to fair market value will be amortized over 15 years, effectively decreasing our annual tax expense by a corresponding amount over that period, creating a net neutral impact.

Unknown Executive: This one-time charge is reflected in the other expense line in our income statement this quarter. Our 2024 results so far show how our focus on the core and prioritization of free cash flow are laying the groundwork for profitable growth for years to come. With that, I'll pass it back to Charlie.

Unknown Executive: This one-time charge is reflected in the other expense line in our income statement this quarter.

Gregory Butler: I appreciate that color. Second one for me, just on the in-house breeding program. You mentioned the goal of 50% of your menus to be Cresco exclusive strains by 2025. If you just surprise and color around the difference in economics from selling and growing those strains and just where you're at today in terms of reaching that target.

Charlie: Our 2024 results so far show how our focus on the core and prioritization of free cash flow are laying the groundwork for profitable growth for years to come.

Gregory Butler: I'll take that, too. I think, you know, what we're finding is, obviously, there's a benefit of selling house brands in your own retail. But for us, what's really important is we look at how our products perform and the quality of products we're putting out there and what we're really proud of them. And what you see in our number one share position across most of our states is that the products that we're making drive really, really strong velocity.

Unknown Executive: With that, I'll pass it back to Charlie.

Speaker Change: there are exciting and meaningful legislative shifts on the horizon and the public had had never been louder with their support for cannabis

Charles Bachtell: We've reached a tipping point with almost half of all states in the country, representing more than half the country's population, having legalized cannabis for adult use, and more adopting common sense regulations every day. We continue to prove out our strategy in every state we operate in, maintaining and gaining share in some of the country's largest and most competitive markets.

Charles Bachtell: we've reached a tipping point with almost half of all states in the country representing more than half the country's population having legalized cannabis for adult use and more adopting common sense regulations every day

Charles Bachtell: still while we're encouraged by plants for rescheduling and adult used conversions we're putting our energy and resources in a building of growth business that's designed for sustainable success regardless of what happens legislatively

Gregory Butler: Now, that's important for us because, obviously, better velocities and better turns mean better profitability. But we also think that's the winning equation for all of our partner accounts out there, too, because if our brands turn faster and warrant better pricing, that's a win-win on profitability for Cresco and our selling side stores. But it's also a win-win for our partners as well. So it's much more of a focus on the best quality product that drives the highest velocities, which we're pretty confident we're doing OK there as we see our number one share still hold.

Charles Bachtell: We continue to prove out our strategy in every state we operate in, maintaining and gaining share in some of the country's largest and most competitive markets.

Charles Bachtell: we're leaning into our improved operating cash flow and profitability to seize on our businesses momentto

Charles Bachtell: this means making smart highroi investments in our core markets reinforcing the capabilities and infrastructure needed to win states with adult use potential and exploring accretive incremental ma in new business opportunities

Nick: Great, that's it for me. Congratulations on the quarter.

Speaker Change: A big thank you and congratulations to the Cresco team on producing a great quarter, and with that, I'll open the call for questions.

Operator: Your next question comes from the line of Pablo Zuanic. With Zuanic and Associates, please go ahead.

Operator: Thank you. The floor is now open for questions. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Operator: Thank you. The floor is now open for questions.

Speaker Change: If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.

Operator: If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: we do request for the today's session that you please limit to one question and one follow upthank you we will pause for the forgjust the moment to compile the qna roster

Speaker Change: Your first question comes from the line of Aaron Grey with Alliance Global Partners. Please go ahead.

re smnith: good morning and that you beggetking my question this is re smnith on for aaron greg my first question i' regard to your gross margin i remain healthy with four cures or quarters about fifty percent fifty two in the que

Speaker Change: i know you kind of touched on you expected to rain around fifty percent

Speaker Change: and 2-H, but...

Speaker Change: Just seeing if you could provide some more color on if there's any additional margin improvements. I mean, you said you made a number of efficiency gains, you know, get a little bit of benefit from.

Speaker Change: Ohio Adult Use, but there seemed to be some pricing pressure on the market. Just wanted to see if you could provide a little bit more color on the 52% gross margin this quarter and how you think about it in the back half of the year.

Dennis Olis: All right, so we'll start with Dennis. Yeah, thanks, Pablo. Yeah, as you noted, yeah, we did file.

Speaker Change: Good morning, Mr. Charlie. I'll start and then Dennis will add some more color.

Unknown Executive: But, you know, I'm really, really pleased with the team's execution in the quarter and managing the puts and takes that are inherent across the industry and our footprints. And so it's really active management of the business that produces the gross profit margins that you've been seeing from us over the last few quarters. And it's the same approach that we'll take in the quarters ahead.

Unknown Executive: But, you know, really, really pleased with the team's execution in the quarter, and managing the puts and takes that are inherent across the industry and our footprints.

Unknown Executive: and so it's really active management

Unknown Executive: of the business that produces the gross profit margins that you've been seeing from us over the last few quarters. And it's the same approach that we'll take in the quarters ahead.

Charles Bachtell: There are, as we said in the prepared remarks, certain levers that really sort of drive margin profiles, including state mix, product mix, et cetera. We're excited about Ohio's adult use program launch on Tuesday. We know that that'll be a driver of our business for quarters and years ahead. And as far as pricing pressure is concerned, I think you mentioned pricing pressure in Ohio. Specifically, I think that typically, what we see from a transition from medical to adult use follows that same trend. But when adult use launches, it tends to, you see an increase in pricing for a period of time. Dennis?

Charles Bachtell: As we said in the prepared remarks, there's certain levers that really sort of drive margin profiles, including state mix, product mix.

Charles Bachtell: etc.

Speaker Change: We're excited about Ohio's adult use program launch from Tuesday. We know that that'll be a driver of our business for for quarters in years ahead and As far as pricing pressure, I think you mentioned pricing pressure in Ohio

Speaker Change: specifically I think that that typically what we see from a transition to medical to adult use follows that same trend but when adult use launches it tends to

Dennis Olis: Yeah, just building on what Charlie said. Look, we saw some favorability in the state mix in Q2 that had an impact, a favorable impact, on our margins in the quarter. So, again, Florida was very strong for us in Q2. That helps drive margins up. With the price pressures that we're seeing in the marketplace, that does put some pressure on margins overall. But I think we've done a great job in offsetting that with some efficiencies in our cultivation and manufacturing facilities.

Speaker Change: you see an increase in pricing for a period of time and it's yeah just building on what charlie said look we saw some favorability in the state mix in in q two that had an impact of favorable impact on her our margest

Dennis Olis: in the quarter. So, again, Florida was very strong for us in Q2. That helps drive margins up.

Dennis Olis: With the price pressures that we're seeing in the marketplace, that does put some pressure on margins overall. I think we've done a great job in offsetting that with some efficiencies in our cultivation and manufacturing facilities.

Dennis Olis: As we look at the second half of the year, and as we see some growth in Ohio, particularly in the fourth quarter with adult use, that will have a slight negative impact on margins that will get us back, we think, closer to the 50% margin as we exit the year until we get our facilities in Ohio up to speed and get them to our average margin performance.

Dennis Olis: As we look to the second half of the year...

Speaker Change: and as we see some growth in ohio particularly in fourth quarter with adultll use

Dennis Olis: That will have a slight negative impact on margins. That'll get us back, we think, closer to the 50% margin as we exit the year until we get our facilities in Ohio up to speed and get them to our average margin performance.

Speaker Change: to most really ple and then

Speaker Change: my second question versse in newyor i know es to market you be constructive on historically and they're been a little bit of hurdles in terms of the allist that market initially actions taken by the illicit

Dennis Olis: by the state against the illicit stores, coupled with

Speaker Change: material amount of legal store openings really helped drive some growth in the market. Just wanted to get your take on how you're viewing the market particularly with the wholesale side and then potentially allocating some cap ads there.

Dennis Olis: So, you know, our position on New York has not changed from prior calls. We're optimistic that New York is going to be a large market going forward.

Dennis Olis: but the start to the legal program there has been challenging and as we're looking at our total footprint in being you know super diligent with allocation capital there's other opportunities in our in our footprint and in our business

Dennis Olis: when you compare the New York opportunity today to the other opportunities that we have.

Speaker Change: and trying to drive the highest roi in the reasonable period of time gets a challenge so we're encouraged by what we're seeing there we do think long term newyork is going to be a big robust program that will be happy to be a part of but

Dennis Olis: in the interim, and in the immediate term, there's other opportunities that we're pushing forward with.

Unknown Executive: Great. That's all for me. I'll hop back in, too.

Speaker Change: self for me all have packing cu

Unknown Executive: Thank you.

Speaker Change: Your next question comes from the line of Scott Fortune with Roth Capital Partners. Please go ahead.

Nick: Yeah, good morning. This is Nick on for Scott. Congrats on the good quarter here. First question for me is just on product mix. I know it differs by state, but can you give us just a general sense of what you saw from the consumer on the quarter, given the potentially kind of tempered macro backdrop here, and just wondering if that translated any changes in spending behavior and how that impacted your mix between the good, better, and best categories. Thank you.

Operator: And so we'll have Greg start with this one. Good morning, Nick.

Gregory Butler: Morning, Nick. You know, in general, for the major trends across states, and I'll start by saying each state does have a little bit of nuance that makes it unique, but on a macro level for trends, it's not surprising what you are seeing is

Gregory Butler: And so we'll have Greg start with this one. Morning, Nick. You know, in general, for the major trends across states, I mean, I'll start by saying each state does have a little bit of nuance that makes it unique, but on a macro level for trends, not surprising what you are seeing is

Speaker Change: Shoppers are looking for value across all categories, all consumer categories, that includes cannabis. We're seeing growth in our value formats are high. We're seeing growth in value formats across the categories are high as consumers look to find ways to save money.

Speaker Change: It doesn't mean though that just value segments are growing, we're actually seeing higher price, more premium products, especially interesting products that are different and new, are able to generate and pull dollars from consumers' wallets and drive some excitement. But I think the macro trend is that there is a value shopper out there.

Greg: things are expensive and as more cannabis becomes available at lower prices and better product quality it becomes a competitive offering for them

Scott Fortune: Scott, I appreciate that color. Second one for me, just on the in-house breeding program, you mentioned the goal of 50% of your menus to be Cresco exclusive strains by 2025. Could you just provide some color on the difference in economics from selling and growing those strains and just where you're at today in terms of reaching that target?

Scott Fortune: Scott, I appreciate that color. Second one for me, just on the in-house breeding program, you mentioned the goal of 50% of your menus to be Cresco-exclusive strains by 2025. Could you just provide some color around the difference in economics from selling and growing those strains and just where you're at today in terms of reaching that target?

Speaker Change: also take that too i think you know what we're finding is obviously there's a benefit of selling house brand you're going ro retail but for us what's really important as we look at how our products perform and the qualityof produs are putting out thereand what 'rereally proud of and when you see in a number one share position rosscessmost forour states

Speaker Change: is that the products that we're making drive really really strong velocity

Speaker Change: Now, that's important for us because obviously better velocities, better turns means better profitability. But we also think that's the winning equation.

Speaker Change: for all of our partner accounts out there too. Because if our brands turn faster and warrant better pricing, that's a win-win on profitability for Cresco and our Sunnyside stores, but it's also a win-win for our partners as well. So it's much more of a focus on the best quality.

Speaker Change: product that drives the highest velocities, which we're pretty confident we're doing okay there as we see our number one share still hold.

Unknown Executive: Great, that's it for me. Congratulations on the quarter.

Unknown Executive: Great, that's it for me. Congrats on the quarter.

Speaker Change: thank you

Unknown Executive: Your next question comes from the line of Pablo Zuanich. With Zuanich and Associates, please go ahead.

Speaker Change: Thank you. Look, two questions, one for Dennis in terms of...

Speaker Change: Unknown Speaker The statement you made on planning, normal company for 2023 and 2024, but will you also be asking for tax refunds for 2020 to 2022? And if not, why not? And then the second question for Charles, if I may.

Unknown Executive: Can you just share your latest expectations in terms of the rescheduling process? Are you still confident that we get this done by Inauguration Day? Thank you.

Dennis Olis: Yeah, thanks, Pablo. As you noted, yeah, we did file or take the tax position for 2023 and 2024. We will plan on looking at protective claims for 2020 through 2022 in the coming quarters.

Dennis Olis: All right, so we'll start with Dennis. Yeah, thanks, Pablo. As you noted, yeah, we did file, or taken the tax position for 23 and 24. We will plan on looking at protective claims for 2020 through 2022 in the coming quarters.

Pablo Zuanic: Thank you. Look, I have two questions. One for Dennis, in terms of the state when you made your planning, normal company for 23 and 24, but will you also be asking for tax refunds for 2020 to 2022? And if not, why not? Right. And then the second question for Charlie, if I may. Can you just share your latest expectations in terms of the rescheduling process? Are you still confident that we will get this done by Inauguration Day? Thank you.

Charles Bachtell: Alright, and then I'll take the second part of the question. Yeah, Pablo.

Unknown Executive: Sorry, and then I'll take the second part of the question. Yeah, Pablo.

Charles Bachtell: So latest expectations on rescheduling, you know, don't have the crystal ball, but I know that the relevant parties are actively reviewing the next steps that they want to take, whether it relates to the hearing or no hearing, and we will know as soon as they're ready to communicate that publicly. I think that's the best position that everybody involved can take. As I said in my prepared remarks, I know this tests the patience of even the most patient of us, but this is a very popular issue. This is a very active political cycle, and so I think you're optimistic here, but we'll see. They'll let us know as soon as they're ready to let us know.

Speaker Change: So latest expectations on rescheduling, you know, don't have the crystal ball, but I know that the

Unknown Executive: The relevant parties are actively reviewing the next steps that they want to take, whether it relates to the hearing or no hearing, and we will know as soon as they are ready to communicate that publicly. I think that's the best position that everybody involved can take. As I said in my prepared remarks, I know this tests the patience of even the most patient of us, but this is a very popular issue. This is a very active political cycle, and so I think you're optimistic here, but we'll see. They'll let us know as soon as they're ready to let us know.

Unknown Executive: The relevant parties are actively reviewing the next steps that they want to take, whether it relates to the hearing or no hearing, and we will know as soon as they are ready to communicate that publicly. I think that's the best position that everybody involved

Unknown Executive: As I said in the prepared remarks, I know it tests the patience of even the most patient of us.

Unknown Executive: But this is a very popular issue, this is a very active political cycle, and so I think you're optimistic here, but we'll see, they'll let us know as soon as they're ready to let us know.

Pablo Zuanic: And if I can, if I just get a follow-up on Ohio, you know... We can say that maybe perhaps the adult use there is a bit of a light start, right? They call it non-medical.

Speaker Change: And if I can, if I just get a follow-up on Ohio, you know,

Unknown Executive: We can say that maybe perhaps the adult use there is a bit of a light start, right? They call it non-medical.

Unknown Executive: We can say that maybe perhaps the adult use there, it's a bit of a light start, right? They call it non-medical. The rules for AU are not fully out yet.

Unknown Executive: The rules for AU are not fully out yet. I mean, is that a big deal, or should we see a very strong ramp anyway? Or if we don't see a strong ramp right now, when do we start getting those AU rules?

Charles Bachtell: The rules for AU are not fully out yet. I mean, is that a big deal, or should we see a very strong ramp anyway? Or if we don't see a strong ramp right now, when do we start getting those AU rules?

Speaker Change: i meanitis that a big deal or we should see a very strong ramp anyway or or if we don't see a strong gram right now when do we start get those year rules if you can just give some context into a no ones there thank you

Unknown Executive: If you can just give some context to the nuance there, thank you. Sure.

Charles Bachtell: If you can just give some context into a nuance there, thank you. Sure.

Charles Bachtell: Sure. I think you articulated it well. The best way to think about the Ohio adult use launch in the immediate term is that it really is. Everything is being done pursuant to the medical program structure and rules, except you're allowed to let non-patients into the dispensary to make purchases. So, from an awareness standpoint, from a marketing standpoint, it's still pursuant to the rules that have been in place there for years under the medical structure. Nothing there has changed, so you may have seen that if you were in the market.

Speaker Change: Sure, so I think you articulated it well. The best way to think about the Ohio adult use launch in the immediate term is that it really is

Speaker Change: Everything is being done pursuant to the medical program structure and rules.

Speaker Change: except you're allowed to let non-patients into the dispensary to make purchases too.

Speaker Change: so if from a awareness standpoint from a marketing standpoint it's still pursuant to the rules that have been in place there for for years under the medical structure

Charles Bachtell: Right now, it still looks and feels very similar to what it did under the medical program. The expectations for adult use rules are this fall, and we're encouraged by the work that the Division is putting in there to kind of try and produce the best launch for the adult use program as possible. We really do appreciate the effort that they put into launching the adult use access as soon as possible. It's a really important part of successfully having an adult use law and program to make sure that there's not a giant gap between when a law gets passed and when a program gets launched. So it's really important, and we look forward to the rules coming out again. Those are the rules for this fall for the adult use rules.

Speaker Change: Nothing there has changed, so you may have seen that if you were in market. Right now, it still looks and feels very similar to what it did under the medical program. The expectations on adult use rules are this fall, and we're encouraged by the work that...

Unknown Executive: The Division is putting in a lot of effort to kind of try and produce the best launch for the adult use program as possible. We really do appreciate the effort that they put into launching the adult use access as soon as possible. It's a really important part of successfully having an adult use law and program is making sure that there's not a giant gap between when a law gets passed and when a program gets launched. So it's really important. And we look forward to the rules coming out again this fall for the adult use rules.

Unknown Executive: the division is putting in there to kind of

Unknown Executive: try and produce the best launch to the adult use program as possible. We really do appreciate the effort that they put into launching the adult use access.

Unknown Executive: As soon as possible. It's a really important part of successfully having an adult use law and program is making sure that there's not a giant gap between when a law gets passed and when a program gets launched. So it's really important. And we look forward to the rules coming out again. Expectations are this fall for the adult use rules.

Speaker Change: Thank you.

Operator: Your next question comes from the line of Najib Islam with Canaccord Genuity; please go ahead.

Operator: Your next question comes from the line of Najib Islam with Canaccord Genuity; please go ahead. Good morning. It's Najib speaking for

Speaker Change: Your next question comes from the line of Najeeb Islam. With Canaccord Genuity, please go ahead.

Najib Islam: Good morning, it's Najib speaking for Luke. So one question I have is, within Florida, what are some of the key factors helping you gain market share there, and how would your growth plans kind of shift gears if adult use passes in November?

Najib Islam: Good morning, it's Najeeb speaking for Luke. So one question I have is, within Florida, what's been some of the key factors helping you gain market share there and how would your growth plans kind of shift gears if adult use goes through in November ?

Charles Bachtell: So this is Charlie. I'll take the second part of that first. So, as we talked about, I think on our last call, we've got a phased approach to Florida that we think puts us in the most appropriate position possible. We are really encouraged by the growth that that team has been able to create over the last year in the medical structure. So we are in a position where we know that we can continue to grow in that state, even if it stays a medical program.

Charles Bachtell: So this is Charlie. I'll take the second part of that first. So, as we talked about, I think on our last call, we've got a phased approach to Florida that we think puts us in the most appropriate position possible. We are really encouraged by the growth that that team has been able to create over the last year in the medical structure. So we are in a position where we know that we can continue to grow in that state, even if it stays a medical program.

Charles Bachtell: So, this is Charlie. I'll take the second part of that first. So, as we talked about, I think, on our last call, we've got a phased approach to Florida that we think it puts us in the most appropriate position possible. We are really encouraged by

Charles Bachtell: the growth that that teams has been able to create over the last year in the medical structure so we are in a position where

Charles Bachtell: We know that we can continue to grow in that state, even if it stays a medical program, and so we're taking actions in this phased approach.

Charles Bachtell: And so we're taking actions in this phased approach to put us in the best position possible for medical or adult use. It'll also help in the initial stages of adult use if it passes. If adult use does pass, then we do have a phased two approach that would be an increase in production capacity to go along with that law passing. But the rationale or reason behind the growth, I'll pass it over to Greg. Yeah, good morning.

Charles Bachtell: And so we're taking actions in this phased approach to put us in the best position possible for medical or adult use. It'll also help in the initial stages of adult use if it passes. If adult use does pass, then we do have a phased two approach that would be an increase in production capacity to go along with that law passing. But the rationale or reason behind the growth, I'll pass it over to Greg. Yeah, good morning.

Charles Bachtell: to put us in the best position possible for medical or adult use. It'll also help for the initial stages of adult use if it passes.

Charles Bachtell: If adult use does pass, then we do have a Phase 2 approach. That would be an increase in production capacity to go along with that law passing. But rationale or reason behind the growth, I'll pass it over to Greg. Good morning. I think as we look at what we've always said in this conference,

Gregory Butler: Yeah, good morning. I think as we look at what we've always said on this call, our view and every market we go into is that we can compete well to get to a leading market position. We're seeing that across states, and in Florida, we're starting to see us grow in that state. I would say the key driver for us is that we believe in our platform. The Sunnyside platform we built is showing great results across many of the markets we operate in, Florida being one of them, in how it's both attracting customers to our stores and delighting them with the products that we're offering in our stores.

Greg: Our view in every market we go into is that we can compete well to get to a leading market position. We're seeing that across states and in Florida we're starting to see us grow in that state. I would say the key drivers for us...

Greg: One is we believe in our platform, the Sunnyside platform we built is showing great results across many of the markets we operate in, Florida being one of them on how it's both attracting customers to our stores and delighting them with the products that we're offering in our stores.

Gregory Butler: The quality of the team running those stores is doing their best to continue to recruit and bring new customers into Sunnyside to see the difference. And then finally, from a product perspective, what we're able to produce in the market from our facility is not only reproducing what we believe are superior products, but we're also able to increase our supply coming out of our footprint that enables us to fuel our stores, that helps us drive that growth.

Greg: the quality of team of running those stores are doing their best to continue to recruit and bring new customers in the sunny side to see the difference

Greg: And then finally, from a product perspective, what we're able to produce in the market from our facility.

Greg: is not only reproducing we believe the supure of products but also we're able to increase our supply coming on of our footprint thatenables us to fuel our stores that helps us drive that growth so it it's a really great story for us of a very proud of

Gregory Butler: So it's a really great story for us. We're very proud of our teams really understanding the market, and building a platform that we think is going to be competitive if it remains medical and will only be supercharged if it goes into adult use.

Greg: of our teams really getting in the market, understanding the market, and building a platform that we think is going to be competitive if it remains medical, and will only be supercharged if it goes into adult use.

Unknown Executive: Sure, I understand that. And another question I have is once you implement pre-roll manufacturing improvements in one state, how easy is it to roll them out across your footprint? And is there any meaningful capex associated with that?

Najib Islam: Sure, I understand that. And another question I have is, once you implement pre-roll manufacturing improvements in one state, how easy is it to roll them out across your footprint? And is there any meaningful capex associated with that?

Speaker Change: Sure, got it. And another question I have is once you implement pre-roll manufacturing improvements in one state, how easy is it to roll out across your footprint and is there any meaningful capex associated with with that?

Gregory Butler: I'll take

Gregory Butler: I'll take that question as well from the point of view of how we think about our SOPs. We do try to find consistent, repeatable, scalable solutions across each of our states. That's why you're seeing the margin improvement that Dennis talked about. So when it comes specifically to pre-rolls, as we, or any capability, as we finalize a form that we think gets us to the best unit economics at the best quality, we will look to roll it out across states.

Greg: I'll take that question as well, from a, you know, how we think about our SOPs, we do try to find consistent, repeatable, scalable solutions across each of our states. That's why you're seeing the marginal improvement that Dennis talked about.

Greg: so it comes specifically approles as we were any iric capability as we finalize a form that we think gets us to the best unit economics at the best quality we will look to roll out across

Gregory Butler: We will prioritize states where we think there's room for us to get in there and take share. So not every single state will turn on all at once. And from a CapEx perspective, it's pretty minimal CapEx for us to do that, especially as we think of a staged approach that goes market by market to find out where we have an opportunity to take share in that segment of the market.

Speaker Change: States, we will prioritize states where we think there's room for us to get in there and take share, so not every single state will turn on all at once.

Greg: And from a CapEx perspective, it's pretty minimal CapEx for us to do that, especially as we think of a staged approach that goes market by market to find out where we have an opportunity to take share in that segment of the market.

Speaker Change: sure i got it thanks

Gregory Butler: Your final question comes from the line of Andrew Semple with Ventum Financial. Please go ahead. Thank you.

Unknown Executive: Your final question comes from the line of Andrew Semple with Vensim Financial. Please go ahead.

Operator: Thank you.

Operator: Hey, good morning. First of all, congrats on the results.

Andrew Semple: First question would just be getting a sense of the Cresco team's stance on Florida ahead of the November votes and how aggressive you plan to be in terms of deploying capital in the state. I know Florida was mentioned as a state where you're planning some capital investments later this year. Just wondering if there's the potential to go much larger than you've already stated if the vote were to be successful.

Speaker Change: very good morning first of all congresss on the results first question would just be getting a sense on the crerescode team stance on florida ahead of ahead of the november votes and how aggressive view plan to be in terms of pointing capital in the in the stateates

Speaker Change: I know Florida was mentioned as a state where you're planning some capital investments later this year. Just wondering if there's the potential to go much larger than you've already stated, if the vote were to be successful.

Charles Bachtell: Sure, so this is Charlie. I'll take that. So we're, you know, how we're feeling about Florida.

Charles Bachtell: Sure, so this is Charlie. I'll take that. So, where are we, you know, how we're feeling about Florida? As it relates to the ballot initiative, we follow the news. We're actively engaged in the efforts down there. And look, we're optimistic. We are encouraged by what we're seeing. And so that does make us optimistic about the likelihood of it passing come November. That said, as we mentioned, this phased approach is the most prudent and appropriate because it'll be successful for us regardless of the outcome.

Speaker Change: As it relates to the ballot initiative, we follow the news, we're actively engaged in the efforts down there, and look, we're optimistic. We're encouraged by what we're seeing.

Charles Bachtell: and and so that does

Speaker Change: make us optimistic for the likelihood of it passing come November . That said, as we mentioned,

Speaker Change: This phased approach we think is the most prudent and appropriate because it'll be successful for us regardless of the outcome. And that's an important thing that we've just learned over the 10 years that we've been in the cannabis space is try to put yourself in a position.

Charles Bachtell: And that's an important thing that we've learned over the 10 years that we've been in the cannabis space: try to put yourself in a position where you're gonna have success, and you're gonna win regardless if a binary situation is positive or not. And so it's an appropriate next step for us. Yes, if adult use passes, we do have a fairly substantial phase two approach that'll go along with it. So we feel good about where Florida is at, and we're feeling really good about our approach.

Charles Bachtell: where you're going to have success and you're going to win regardless if a binary situation is a positive or not.

Charles Bachtell: and so it's an appropriate next step for us yes if adult use passes we do have a fairly substantial phase to approach that will go along with it so feeling feeling good about where florida that and we're feeling really good about ourapproach

Andrew Semple: Great, that's helpful. And just a follow-up question would be more broadly across our retail portfolio. Over the past couple of quarters, has there been any major shift in the vertical integration you've deployed on your Sunnyside store shelves in terms of carrying more Cresco branded products? Just as it relates to some of the margin improvement that we've seen over the past few quarters? Has there been any shift in strategy there, or has that been fairly consistent?

Speaker Change: Great, that's helpful. And just a follow-up question would just be more broadly, across our retail portfolio, over the past couple of quarters, has there been any major shifts in the vertical integration you've deployed at your Sunnyside store shelves in terms of carrying more Cresco-branded products?

Speaker Change: Just as it relates to some of the margin improvement that we've seen over the past few quarters. Has there been any shift in strategy there or has that been fairly consistent?

Gregory Butler: Hi, it's Greg.

Gregory Butler: Hi Greg. Let me-

Gregory Butler: Hi, it's Greg. Let me take that. Our view and how we run our assortment in our stores is that we do look for what is the highest velocity skews we offer, and we think of velocity as truly showing you what our shoppers demand and what they prefer. Now, as I mentioned in an earlier question, a lot of times, that tends to be our brand. So that's really encouraging.

Gregory Butler: Hi, it's Greg. Let me take that. Our view and how we run our assortment in our stores is we do look for what is the highest velocity SKUs we offer, and we think of velocity that's truly showing you what our shoppers demand and what they prefer. Now, as I mentioned in an earlier question, a lot of the time, that tends to be our brands, so that's really encouraging. But then, as we think about others, if there's another brand or another format that has really strong velocity and that's also ideally complementary to what we're offering in our assortment, that certainly is going to be something that we're going to pick up and put in our stores.

Gregory Butler: Hi, it's Greg. Let me take that. Our view and how we run our assortment in our stores is we do look for

Gregory Butler: What is the highest velocity SKUs we offer? And we think of velocity that's truly showing you what our shoppers demand and what they prefer. Now, as I mentioned in an earlier question, a lot of the times that tends to be our brands. So that's really encouraging. But then as we think about...

Gregory Butler: If there's another brand or another format that has really strong velocity, that's also ideally accretive to what we're offering in our assortment, that certainly is going to be something that we're going to pick up and put in our stores. And there's also new segments that are emerging.

Gregory Butler: And there are also new segments that are emerging, which maybe we're not quite ready to get into yet, but we'll do a test and learn other assortments in our stores to see how it's going to unfold and how the economics look behind it. So, I wouldn't say that there's a forced requirement of how much.

Gregory Butler: which maybe we're not quite ready to get into yet, but we'll do a test and learn other assortment in our stores to see how it's going to unfold and how the economics look behind it. So I wouldn't say that there's a forced requirement of how much

Gregory Butler: We're putting into our stores, but rather we are looking at how do we optimize own brands and third-party brands?

Gregory Butler: to make sure that the profit story is the strongest, and that really does come down to consumer pull velocities. And as I mentioned before, that does tend to lead us to our own brands, but always opportunity for other brands in there as well.

Speaker Change: Thank you.

Charles Bachtell: That concludes our Q&A session. I will now turn the call back over to Charlie Bachtell for closing remarks. Please go ahead. Thank you.

Speaker Change: Thank you.

Gregory Butler: That concludes our Q&A session. I will now turn the call back over to Charlie Bachtell for closing remarks. Please go ahead.

Charles Bachtell: Yeah, just want to thank everybody for joining us today. And, most importantly, we want to thank the Cresco team for a really solid quarter. Thank you guys. Congratulations. And we'll talk to everybody in a couple of months. Goodbye.

Charles Bachtell: Yeah, just want to thank everybody for joining us today. And, most importantly, I want to thank the Cresco team for a really solid quarter. Thank you guys. Congratulations. And we'll talk to everybody in a couple of months. Goodbye.

Charles Bachtell: Yeah, just want to thank everybody for joining in today and most importantly want to thank the Cresco team for a really solid quarter. Thank you guys. Congratulations and we'll talk to everybody in a couple of months. Goodbye.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.

Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Gregory Butler: But then as we think about others, if there's another brand or another format that has really strong velocity and that's also, ideally, similar to what we're offering in our assortment, that certainly is going to be something that we're going to pick up and put in our stores. And there are also new segments that are emerging, which maybe we're not quite ready to get into yet, but we'll do a test and introduce other assortments in our stores to see how it's going to unfold and how the economics look behind it.

Gregory Butler: So I wouldn't say that there's a forced requirement of how much we're putting into our stores, but rather we are looking at how we optimize own brands and third-party brands to make sure that the profit story is the strongest, and that really does come down to consumer poll velocities. And as I mentioned before, that does tend to lead us to our own brands, but there is always opportunity for other brands there as well.

Operator: [inaudible]