Q1 2025 Cresco Labs Inc Earnings Call
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Speaker Change: Note. This event is being recorded I would like to turn the call over to T. J code Senior Vice President corporate development and Investor Relations for crest scale ups. Please go ahead.
Speaker Change: Thank you good morning, and welcome to Crystal Labs first quarter 2025 earnings Conference call.
Charles: On the call today, we have chief Executive Officer, and co founder Charles <unk>, Chief Financial Officer, Sharon Jeweler, and President and Greg Butler, who will be available for the Q&A prior.
Speaker Change: Prior to this call we issued our first quarter earnings press release, which has been filed on SEDAR and is available on our Investor Relations website.
Speaker Change: On Friday May 32025, we filed the company's quarterly financial statements and in G&A for the quarter ended March 31, 2025 on SEDAR and Edgar.
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 most recent annual information form and MD&A filed with the Securities regulators. This call also contains non-GAAP measures also outlined in our earnings press release and in MD&A filed 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.
Charlie: With that I'll turn the call over to Charlie.
Charlie: Good morning, everybody and thank you for joining our Q1 earnings call.
Charlie: Before getting into our financials I want to briefly acknowledge the extended timeline for our filings and earnings release. This quarter simply stated our auditors needed additional time to complete the review of our first quarter financials. Please note that the financials as presented remain unchanged from what we were prepared to report on May 9th we understand and share your frustration with such delay.
Charlie: And we appreciate your patience during this process with that I'd now like to discuss the broader strategy guiding our financial decisions over the last two years.
Speaker Change: For the last two years, we've deliberately focused on generating cash and strengthening our balance sheet, rather than chasing short term revenue that.
Speaker Change: That strategy continues to pay off.
Speaker Change: We entered 2025 with the flexibility and financial strength needed to navigate market volatility complete our debt refinancing and remain both strategic and patient as we invest thoughtfully for the long term growth.
Speaker Change: In Q1, we delivered $166 million in revenue in line with guidance.
Speaker Change: This reflects our successful plan of limiting sales to wholesale accounts with credit risk to reduce our exposure, we generated $82 million and adjusted gross profit and $36 million and adjusted EBITDA.
Speaker Change: Our push for efficiency helped to offset the lower operating leverage and minimize margin impact. Most importantly, these actions translate into strong cash results, we generated $30 million in operating cash flow and ended the quarter with $162 million in cash our highest balance in the past three years.
Speaker Change: We're focused on ensuring our balance sheet remains in the strongest possible position to support long term value creation by staying disciplined and thoughtful in how we deploy capital we're positioning Chriscoe labs to drive margin expansion gain market share and invest in sustainable growth when the right opportunities arise with that I'll walk.
Speaker Change: Through the three strategic pillars, we're executing against to build the strongest and most valuable critical labs for the future number one we're ensuring we have the most strategic footprint.
Speaker Change: We're expanding our footprint intentionally prioritizing depth over breadth and profitability over revenue for its own sake, we're proud of our ability to drive cost effective scale and consistent quality in our markets and our cash flow enables us to develop new states is long term accretive opportunities. We're putting this to work in our highest margin and growth states.
Speaker Change: In Pennsylvania, where we're number one in branded market share. We opened our 18th Dispensary last week and are in the process of bringing more cultivation rooms online to meet increased demand.
Speaker Change: In Ohio, and other high growth market.
Speaker Change: We're on the verge of opening the first of three new dispensaries in the state. Another example of low Capex investments that drive high incremental cash flow.
Speaker Change: In Kentucky, we're excited to bring our capabilities to a new population and demonstrate with cannabis can do for their communities at the end of April Kentucky, Governor Andy Beshear joined Us to unveil our plans for one of the state's largest cultivation facilities in Winchester.
Speaker Change: We will operate one of the states to tier three licenses the largest available and we're building relationships with local partners to ensure the success of our Kentucky operations to help educate the public and policymakers. We recently gave tours at both our Ohio cultivation facility in the future side in Kentucky.
Speaker Change: As a great opportunity to showcase the sophistication of our operations and provide a firsthand look at what a responsible high quality medical cannabis program looks like we have a track record of being first to market building, leading operations and investing to meet demand and we're excited to do the same in Kentucky.
Speaker Change: By deploying capital selectively we are strategically building a portfolio of cost effective growth opportunities. While also strengthening our core operations setting us up for long term value creation, we will continue to evaluate new assets and additional state opportunities and are typically disciplined fashion number two we remain the leader in branded wholesale.
Speaker Change: <unk>.
Speaker Change: Branded product portfolio strategy is grounded and disciplined execution and deep consumer insight and Q1. This focus helped us retain our number one market share positions in Illinois, and Pennsylvania two of our most strategically important markets and maintain a top five position across all of our limited license wholesale markets.
Speaker Change: We're maximizing growth across our core markets by winning with independent accounts in Q1, we served 13% more independent accounts than last year and saw independent growth increase across all core wholesale markets. We achieved this by continuously optimizing our portfolio for what independents need using real time consumer and market data.
Speaker Change: For example in Q1, we brought nearly 40 unique new flavors to market across key product categories.
Speaker Change: Looking ahead, we're pushing this momentum with innovation and product technology formats and packaging. This include next generation premium base under the <unk> banner, new hardware in larger formats for high supply Vapes, and edibles and new form factors designed to capture incremental occasions.
Speaker Change: Partners know they can count on us not just for consistent execution, but also for a reliable pipeline of winning products whether its proprietary strains breakthrough formats are trusted skus from brands like flora Cal or good news, we're committed to delivering innovation that resonates with consumers and drives velocity on dispensary shelves.
Speaker Change: And number three we are building a highly productive retail platform in the most strategic states.
Speaker Change: We continue to strengthen <unk> competitive position fostering loyalty building bigger baskets and selling more units than we did a year ago.
Speaker Change: Across our footprint Sunnyside dispensaries consistently outperform generating approximately 25% more revenue per store than the state average O'hare.
Speaker Change: The Ohio, our newest adult use market is a great example of our playbook in action.
Speaker Change: Our retail team manage the adult use transition exceptionally well scaling up our five stores to meet new demand in Q1, we processed over twice as many transactions as we did a year ago, gaining market share and growing sales, 4% sequentially and.
Speaker Change: In markets like Illinois competition has intensified significantly with over 30% increase in dispensaries over the past year.
Speaker Change: Every touch point with our shoppers even more important a key differentiator for us nearly 80% of our transactions come from Sunny side Dot shop, allowing us to build relationships and gather data that goes well beyond the point of sale, we're generating strong customer loyalty with over 60% customer retention and a growing rewards.
Speaker Change: Graham comprised of nearly 400000 active members.
Speaker Change: Competition is only getting tougher and customers are looking for differentiation beyond price.
Speaker Change: <unk> is meeting the challenge and pulling new levers to make shopping more convenient more enjoyable and more rewarding.
Speaker Change: In closing our overarching goal remains unchanged to enhance the quality of our earnings generate consistent cash flow and position ourselves as a long term leader in cannabis.
Speaker Change: This quarter was no exception, we made disciplined decisions to strategically fuel future growth and reinforce our balance sheet. So that we're positioned to be a reliable long term leader in this highly volatile industry with that I'll hand, it over to Sharon to walk through our Q1 performance in more detail.
Operator: will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Sharon: Thank you Charlie and good morning, everyone as Charlie said the quality of earnings continued to be a theme for us in Q1, we made deliberate decisions to forgo revenue opportunities that have questionable cash benefits in support of that goal.
Our retail team manage the adult use transition exceptionally well scaling up our five stores to meet new demand in Q1, we processed over twice as many transactions as we did a year ago.
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then one on your touch. To withdraw your question, please press the star key followed by two.
Gaining market share and growing sales, 4% sequentially and.
Sharon: This resulted in a $166 million in revenue.
In markets like Illinois competition has intensified significantly with over 30% increase in dispensaries over the past year.
Sharon: Total retail revenue was down 5% from Q4, driven by traditional seasonality and competition in Illinois, where we saw overall state sales declined over 6%.
Operator: Please note this event is being recorded.
TJ Cole: I would like to turn the call over to TJ Cole, Senior Vice President, Corporate Development and Investor Relations for Cresco Labs. Please go ahead. Thank you.
This makes every touch point with our shoppers even more important a key differentiator for us nearly 80% of our transactions come from Sunny side Dot shop, allowing us to build relationships and gather data that goes well beyond the point of sale, we're generating strong customer loyalty with over 60% customer retention and a growing reward.
Sharon: Wholesale revenue declined sequentially largely related to volume decreases related to our purposeful decision to limit sales to accounts with credit risk. Our team has done a great job, reducing receivables by 13% since the end of 2024, we are committed to profitable sales that convert to cash rather than chasing top line.
Charles Bachtell: Good morning and welcome to Cresco Labs first quarter 2025 earnings conference call.
Charles Bachtell: On the call today we have Chief Executive Officer and Co-Founder Charles Bachtell, Chief Financial Officer Sharon Schuler, and President Greg Butler, who will be available for the Q&A.
<unk> program comprised of nearly 400000 active members competition.
Charles Bachtell: Prior to this call, we issued our first quarter earnings press release, which has been filed on CDAR and is available on our investor relations.
Sharon: Adjusted gross margin for the quarter was 49% down 20 basis points sequentially. We continue to take proactive steps to preserve and strengthen profitability even in the face of price compression.
Competition is only getting tougher and customers are looking for differentiation beyond price Sunnyside as meeting the challenge and pulling new levers to make shopping more convenient more enjoyable and more rewarding.
Charles Bachtell: On Friday, May 30th, 2025, we filed the company's quarterly financial statements and NDNA for the quarter ended March 31st, 2025 on CDAR and SDA.
Sharon: Our teams are aggressively executing targeted productivity initiatives innovating products that command premium pricing and leveraging our scale to optimize sourcing and production costs cost discipline remains a key driver of our strategy, we reduced adjusted SG&A by just under a million sequentially to $53 million this quarter.
In closing our overarching goal remains unchanged to enhance the quality of our earnings generate consistent cash flow and position ourselves as a long term leader in cannabis.
Charles Bachtell: 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. The risks, uncertainties, and other factors that could influence actual results are described in our earnings press release, and in the most recent annual information forum and MV&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 filed with the Securities Regulatory Commission. Please also note that all financial information on today's call is presented in U.S.
There was no exception, we made disciplined decisions to strategically fuel future growth and reinforce our balance sheet. So that we're positioned to be a reliable long term leader in this highly volatile industry.
Sharon: Despite expenses tied to adult use in Ohio and upcoming dispensary openings.
With that I'll hand, it over to Sharon to walk through our Q1 performance in more detail.
Sharon: In the quarter the decline in revenue and a corresponding reduction in operating leverage led to $36 million and adjusted EBITDA, representing 22% of revenue in the quarter.
Sharon: Thank you Charlie and good morning, everyone as Charlie said quality of earnings continue to be a theme correct. In Q1, we made deliberate decisions to forgo revenue opportunities that have questionable cash benefits in support of that goal.
Charles Bachtell: dollars and all interim financial information is an online With that, I'll turn the call over to Charlie. Good morning, everybody, and thank you for joining our Q1 earnings call. Before getting into our financials, I want to briefly acknowledge the extended timeline for our filings and earnings release this quarter. Simply stated, our auditors needed additional time to complete the review of our first quarter financials. Please note that the financials as presented remain unchanged from what we were prepared to report on May 9th. We understand and share your frustration with such delay, and we appreciate your patience during this process.
Sharon: Most importantly, we generated $30 million in operating cash flow this quarter underscoring the strength of our business model and the discipline of our execution.
This resulted in $166 million in revenue.
Sharon: We remain committed to our capital allocation framework prioritizing operational efficiency disciplined growth investments and balance sheet strength.
Retail revenue was down 5% from Q4, driven by traditional seasonality and competition in Illinois, where we saw overall state sales declined over 6%.
Sharon: In Q1, we invested $6 million in Capex, resulting in free cash flow of 25 million and an ending cash balance of $162 million. Our cash balance is now stronger it's been in the past three years.
Wholesale revenue declined sequentially largely related to volume decreases related to our purposeful decision to limit sales to accounts with credit risk. Our team has done a great job, reducing receivables by 13% since the end of 2024, we are committed to profitable sales that convert to cash rather than chasing top line.
Charles Bachtell: With that, I'd now like to discuss the broader strategy guiding our financial decisions over the last two years. For the last two years, we've deliberately focused on generating cash and strengthening our balance sheet, rather than chasing short-term revenue. That strategy continues to pay off. We entered 2025 with the flexibility and financial strength needed to navigate market volatility, complete our debt refinancing, and remain both strategic and patient as we invest thoughtfully for long-term growth. In Q1, we delivered $166 million in revenue in line with guidance. This reflects our successful plan of limiting sales to wholesale accounts with credit risk to reduce our AR exposure.
Sharon: We are progressing on schedule with our debt refinancing and are confident we will complete it over the next few months.
Sharon: Given our strong and consistent cash generation and we expect to pay down a portion of the debt on refinancing positioning us for an even stronger balance sheet.
Adjusted gross margin for the quarter was 49% down 20 basis points sequentially.
Sharon: We continue to take proactive steps to preserve and strengthen profitability even in the face of price compression.
Sharon: Our improved financial profile is attracting solid refinancing terms and we are focused on securing a structure that enhances flexibility and reduces our cost of capital over time looking ahead to Q2, we expect revenue to be down slightly compared to Q1, largely due to onetime impacts related to Illinois mandatory seed to sale system.
Sharon: Teams are aggressively executing targeted productivity initiatives.
Sharon: Bating products that command premium pricing and leveraging our scale to optimize sourcing and production costs.
Sharon: Cost discipline remains a key driver of our strategy, we reduced adjusted SG&A by just under a million sequentially to $53 million. This quarter. Despite expenses tied to adult use in Ohio and upcoming dispensary openings.
Sharon: Conversion, taking place in May and June.
Charles Bachtell: We generated $82 million in adjusted gross profit and $36 million in adjusted EBIT out. Our push for efficiency helped offset the lower operating leverage and minimize margin impact. Most importantly, these actions translate into strong cash results. We generated $30 million in operating cash flow and ended the quarter with $162 million in cash, our highest balance in the past three years. We're focused on ensuring our balance sheet remains in the strongest possible position to support long-term value creation.
Sharon: As a result, we have seen an impact of wholesale sales in the state as retailers hold on new purchases.
Sharon: Work through existing inventory in hopes of simplifying their conversion process we.
Sharon: In the quarter the decline in revenue and a corresponding reduction in operating leverage led to $36 million and adjusted EBITDA, representing 22% of revenue in the quarter.
Sharon: We expect this to normalize in future quarters once the conversion has taken place.
Sharon: Going forward, new dispensaries in Pennsylvania, and Ohio increased capacity in Illinois, and Pennsylvania, and a strong lineup of product innovation and new inefficiencies should help offset the impact of price compression and competition in the back half of the year, particularly in Illinois retail.
Sharon: Most importantly, we generated $30 million in operating cash flow this quarter underscoring the strength of our business model and the discipline of our execution.
Sharon: We remain committed to our capital allocation framework prioritizing operational efficiency disciplined growth investments and balance sheet strength in.
Charles Bachtell: By staying disciplined and thoughtful in how we deploy capital, we're positioning Cresco Labs to drive margin expansion, gain market share, and invest in sustainable growth when the right opportunities arise. With that, I'll walk through the three strategic pillars we're executing against to build the strongest and most valuable Cresco Labs for the future. Number one, we're ensuring we have the most strategic footprint. We're expanding our footprint, intentionally prioritizing depth over breadth and profitability over revenue for its own sake. We're proud of our ability to drive cost-effective scale and consistent quality in our markets, and our cash flow enables us to develop new states as long-term accretive opportunities.
Sharon: We expect margin pressure in Q2 further amplified by the Illinois state conversion process and its impact on our state revenue mix.
In Q1, we invested $6 million in Capex, resulting in free cash flow of $25 million and an ending cash balance of $162 million.
Sharon: This will result in a couple of hundred basis point impact in Q2 for.
Our cash balance is now the strongest it's been in the past three years.
Sharon: For the remainder of the year, we expect modest margin pressure with quarter to quarter fluctuations on the expense side were squeezing every dollar to offset cost tied to growth like news store openings in our build out in Kentucky. As a result, we expect only modest increases in adjusted SG&A throughout the year.
We are progressing on schedule with our debt refinancing and are confident we will complete it over the next few months.
Given our strong and consistent cash generation and we expect to pay down a portion of the debt on refinancing positioning us for an even stronger balance sheet.
Sharon: We have a strengthening balance sheet and strong cash flow with a plan to fund growth thoughtfully.
Sharon: Our improved financial profile is attracting solid refinancing terms and we are focused on securing a structure that enhances flexibility and reduces our cost of capital over time looking ahead to Q2, we expect revenue to be down slightly compared to Q1, largely due to one time impacts related to Illinois mandatory seed to sale system.
Charles Bachtell: We're putting this to work in our highest margin in growth states. In Pennsylvania, where we're number one in branded market share, we opened our 18th dispensary last week and are in the process of bringing more cultivation rooms online to meet increased demand. In Ohio, another high growth market, we're on the verge of opening the first of three new dispensaries in the state, another example of low capex investments that drive high incremental cash flow. In Kentucky, we're excited to bring our capabilities to a new population and demonstrate what cannabis can do for their communities. At the end of April, Kentucky Governor Andy Beshear joined us to unveil our plans for one of the state's largest cultivation facilities in Winchester.
Charlie: We're excited to show more in the back half of this year and into 2026 with that I'll turn it back over to Charlie.
Charlie: Thank you Sharon.
Charlie: This industry remains complex and unpredictable, but we're staying focused on what we can control leading in our core markets, maintaining a fortress balance sheet and being disciplined in our pursuit of new growth opportunities. We are in a better position than ever to not only weather regulatory and market uncertainty, but to capitalize on these challenges and.
Conversion, taking place in May and June.
As a result, we have seen an impact of wholesale sales in the state as retailers hold on new purchases and work through existing inventory in hopes of simplifying their conversion process.
Charlie: Emerge in a stronger more advantaged position.
We expect this to normalize in future quarters once the conversion has taken place.
Sharon: I want to thank the Crisco labs team for another focused and successful quarter and with that we'll open it up for your questions.
Sharon: Going forward, new dispensaries in Pennsylvania, and Ohio increased capacity in Illinois, and Pennsylvania, and a strong lineup of product innovation and new inefficiencies should help offset the impact of price compression and competition in the back half of the year, particularly in Illinois retail.
Charles Bachtell: We'll operate one of the state's two Tier 3 licenses, the largest available, and we're building relationships with local partners to ensure the success of our Kentucky operation. To help educate the public and policymakers, we recently gave tours of both our Ohio cultivation facility and the future site in Kentucky. It was a great opportunity to showcase the sophistication of our operations and provide a first-hand look at what a responsible, high-quality medical cannabis program looks like. We have a track record of being first to market, building leading operations and investing to meet demand, and we're excited to do the same in Kentucky.
Sharon: Thank you to ask a question. Please press star followed by one on your telephone keypad now.
Sharon: If you change your mind, Please press star followed by chain.
Sharon: When preparing to ask a question. Please ensure your device is unmatched it locally.
We expect margin pressure in Q2 further amplified by the Illinois state conversion process and its impact on our state revenue mix.
Speaker Change: The first question comes from Aaron Grey of Alliance Global Partners. Your line is now open. Please go ahead.
Sharon: This will result in a couple of hundred basis point impact in Q2 for.
Aaron Grey: Hi, Good morning, Thank you for the questions and nice job with the cash conversion <unk> done for the last couple of quarters.
Sharon: For the remainder of the year, we expect modest margin pressure with quarter to quarter fluctuations on the expense side were squeezing every dollar to offset costs tied to growth like new store openings and our buildout in Kentucky as a result, we expect only modest increases in adjusted SG&A throughout the year.
Aaron Grey: First question for me, if you want to talk about outlook for pricing pressure.
Charles Bachtell: By deploying capital selectively, we're strategically building a portfolio of cost effective growth opportunities, while also strengthening our core operations, setting us up for long term value creation. will continue to evaluate new assets and additional state opportunities in our typically disciplined fashion.
Sharon: Whether or not you're seeing that somewhat stabilize our accelerated and how the company looks at the long term pricing trends given what we've seen the pricing curve evolve like and so any different type of market structures doctors limited license markets and increasingly become more open like Massachusetts. So any type of commentary in terms of how you are now looking at the overall evolution of.
Sharon: We have a strengthening balance sheet and strong cash flow with a plan to fund growth thoughtfully.
Sharon: We're excited to show more in the back half of this year and into 2026.
Charles Bachtell: Number two, we remain the leader in branded wholesale products. A branded product portfolio strategy is grounded in disciplined execution and deep consumer insight. In Q1, this focus helped us retain our number one market share positions in Illinois and Pennsylvania, two of our most strategically important markets, and maintain a top five position across all of our limited license wholesale markets. We're maximizing growth across our core markets by winning with independent accounts. In Q1, we served 13% more independent accounts than last year and saw independent growth increase across all core wholesale markets. We achieve this by continuously optimizing our portfolio for what independents need using real-time consumer and market data.
With that I'll turn it back over to Charlie.
Sharon: Pricing pressure for different markets would be helpful. Thanks.
Charlie: Thank you Sharon.
Charlie: This industry remains complex and unpredictable, but we're staying focused on what we can control leading in our core markets, maintaining a fortress balance sheet.
Sharon: Yeah.
Speaker Change: Hey, good morning, Erinn I'll take that so each market is different as you mentioned there is.
Charlie: Being disciplined in our pursuit of new growth opportunities, we are in a better position than ever to not only weather regulatory and market uncertainty, but to capitalize on these challenges and emerge in a stronger more advantaged position.
Speaker Change: There is a.
Speaker Change: Relatively common curve that we see when when states transition from medical to adult use and depending on the tenure of the state they are indifferent.
Speaker Change: They are in different positions as it relates to the curve.
Charlie: I want to thank the crisco labs team for another focused and successful quarter.
Speaker Change: In our major markets.
Speaker Change: Illinois, we are still seeing some pressure.
Charlie: That will open it up for your questions.
Sharon: There's no doubt about it but the the opportunity that exists there is pricing compresses demand tends to increase and as an operator, it's up to us to make sure that we're prepared for the opportunity that that presents and it's why you see us bringing additional capacity online in states.
Charlie: Thank you to ask a question. Please press star followed by one on your telephone keypad now.
Charles Bachtell: For example, in Q1, we brought nearly 40 unique new flavors to market across key product categories. Looking ahead, we're pushing this momentum with innovation in product technology, formats, and packaging. This includes next generation premium vapes under the Cresco banner, new hardware and larger formats for high supply vapes and edibles, and new form factors designed to capture incremental occasion. Our partners know they can count on us, not just for consistent execution, but also for a reliable pipeline of winning products, whether it's proprietary strains, breakthrough formats, or trusted SKUs from brands like FloraCal or Good News, we're committed to delivering innovation that resonates with consumers and drives velocity on dispensary shelves.
Charlie: If you change your mind, Please press star followed by chain.
Charlie: When preparing to ask a question. Please ensure your device is unmated Luckily.
Speaker Change: The first question comes from Aaron Grey of Alliance Global Partners Arvind. Your line is now open. Please go ahead.
Sharon: Like Illinois, and Pennsylvania so.
Sharon: Yes, the different states are at different parts of that curve and coming up with that curated custom approach to each market is key for managing this as we go forward.
Aaron Grey: Hi, Good morning, Thank you for the questions and nice job with the cash conversion they've done for the next couple of quarters.
Sharon: Yeah.
Aaron Grey: First question for me, if you want to talk about outlook for pricing pressure.
Sharon: Yeah.
Sharon: Thanks for that that's helpful. Second question for me just in terms of.
Charlie: Whether or not you're seeing that somewhat stabilize or accelerated.
Charlie: And how the company looks at the long term pricing trends given what we've seen the pricing curve evolve like in different type of market structure sectors limited license markets that increasingly become more open like a massachusetts. So any type of commentary in terms of how you are now looking at the overall evolution of pricing pressure for different markets would be helpful. Thanks.
Sharon: Our risk.
Sharon: Much of an impact do you believe that had on it from a softer wholesale revenue compared to broader pricing pressure I know it was called out in the prepared remarks, and then on the same topic.
Charles Bachtell: And number three, we're building a highly productive retail platform in the most strategic state. We continue to strengthen Sunnyside's competitive position, fostering loyalty, building bigger baskets, and selling more units than we did a year ago. Across our footprint, Sunnyside Dispensaries consistently outperform, generating approximately 25% more revenue per store than the state average. Ohio, our newest adult use market is a great example of our playbook in action. Our retail team managed the adult-youth transition exceptionally well, scaling up our five stores to meet new demand. In Q1, we processed over twice as many transactions as we did a year ago, gaining market share and growing sales 4% sequentially.
Sharon: Just can you talk about where you stand in the process have you cut off the accounts that were at risk have that list of accounts held constant or as a growing number of accounts that have been added to that Rick.
Charlie: Yeah.
Charlie: Okay.
Charlie: Hey, good morning, Erinn I'll take that so each market is is different as you mentioned, there's a there's a.
Sharon: Thank you.
Sharon: Okay.
Sharon: Sure I'll start that one too.
Sharon: Our management is as you heard on our prepared remarks is key for US we want to make sure that the revenue that we're producing as an organization that has the highest quality that it can be and so managing that across the footprint has been a focus of ours for the last couple of quarters in particular it has resulted in.
Charlie: Relatively common curve that we see when when states transition from medical to adult use and depending on the tenure of the state they are indifferent.
Charlie: They are in different positions as it relates to the curve.
Charlie: In our major markets like Illinois, we're still seeing some pressure.
Sharon: Having unfortunately to shut down some accounts that were significant contributors to our business. It's also resulted though in obtaining some workout plans with other accounts that have allowed us to turn them back on so something that.
Charlie: There's no doubt about it but.
Charles Bachtell: In markets like Illinois, competition has intensified significantly, with over a 30% increase in dispensaries over the past year. This makes every touchpoint with our shoppers even more important, a key differentiator for us. Nearly 80% of our transactions come from sunnyside.shop, allowing us to build relationships and gather data that goes well beyond the point of sale. We're generating strong customer loyalty with over 60% customer retention and a growing rewards program comprised of nearly 400,000 active members. Competition is only getting tougher and customers are looking for differentiation beyond price. Sunnyside is meeting the challenge in pulling new levers to make shopping more convenient, more enjoyable, and more rewarding.
Charlie: The opportunity that exists there is pricing compresses demand tends to increase.
Charlie: As an operator, it's up to us to make sure that we're prepared for the opportunity that that presents and Thats why you see us bringing additional capacity.
Sharon: Just like in any other industry and we've seen this in some markets that are more mature and more competitive markets, but it is coming into some of these historically more limited license markets too with some larger operators. It's a part of the business it needs to be actively managed and I'm proud of the team for reducing <unk>.
Charlie: In states, like Illinois, and Pennsylvania So.
Speaker Change: Yeah. The different states are at different parts of that curve and coming up with that curated custom approach to each market is key for managing this as we go forward.
Sharon: Over the last quarter and also being able to bring some of those accounts back online. So they can be productive going forward.
Speaker Change: Yeah.
Charlie: Yeah.
Charlie: Thanks for that that's helpful. Second question for me just in terms of they.
Sharon: Yeah.
Sharon: Yeah.
Charlie: Our risk.
Speaker Change: Okay, Great I appreciate that color I'll jump back into the queue.
Charlie: What impact do you believe that had on it from a softer wholesale revenue compared to broader pricing pressure I know it was called out in the prepared remarks, and then on the same topic.
Speaker Change: Okay.
Charles Bachtell: In closing, our overarching goal remains unchanged, to enhance the quality of our earnings, generate consistent cash flow, and position ourselves as a long-term leader in Canada. This quarter was no exception. We made disciplined decisions to strategically fuel future growth and reinforce our balance sheet so that we're positioned to be a reliable, long-term leader in this highly volatile industry.
Federico Games: The next question comes from Federico games of <unk> capital markets. Your line is now open. Please go ahead.
Charlie: First can you talk about where you stand in the process have you cut off the accounts that were at risk have that list of accounts held constant or as a growing number of accounts that have been added to that where are Rick. Thank you.
Federico Games: Yes. Good morning. Thank you for taking my question. So just following up on the.
Sharon: Question about the wholesale accounts.
Charlie: Okay.
Sharon: Are you seeing any any further improvement or deterioration in regards to <unk>.
Charlie: Sure I'll start that one too.
Sharon Schuler: With that, I'll hand it over to Sharon to walk through our Q1 performance in more detail. Thank you, Charlie, and good morning, everyone. As Charlie said, quality of earnings continue to be a theme for us. In Q1, we made deliberate decisions to forego revenue opportunity that have questionable cash benefits in support of that goal. This resulted in $166 million in revenue. Total retail revenue was down 5% from Q4, driven by traditional seasonality and competition in Illinois, where we saw overall state sales decline. Wholesale revenue declined sequentially largely related to volume decreases related to our purposeful decision to limit sales to accounts with credit.
Charlie: <unk> management as you heard on our prepared remarks is key for US we want to make sure that the revenue that we're producing as an organization is the highest quality that it can be and so managing that across the footprint has been a focus of ours for the last.
Sharon: Wholesale accounts in different market than specifically are there any markets that you can highlight where you think this is more pronounced.
Charlie: Couple of quarters in particular it has resulted in.
Frederic: Sure Frederic.
Sharon: I'll start that.
Charlie: <unk>.
Charlie: Having unfortunately to shut down some accounts that were significant contributors to our business. It's also resulted though in in obtaining some workout plans with other accounts that have allowed us to turn them back on so something that just like in any other industry and we've seen this in some markets that are more mature and more competitive markets, but it is coming into <unk>.
Sharon: So yes, as I mentioned it can be different from market to market, but it also can include.
Sharon: Multistate operators that have operations in multiple footprints. So it's a dynamic situation.
Sharon: We experienced.
Sharon: Experienced having having a footprint that is included in states like California, and Michigan over the years again those were markets, where this may be.
Charlie: Some of these.
Sharon Schuler: Our team has done a great job reducing receivables by 13% since the end of 2020. We are committed to profitable sales that convert to cash rather than chasing top lines. The suggested gross margin for the quarter was 49%, down 20 basis points sequentially. We continue to take proactive steps to preserve and strengthen profitability, even in the face of price compression. Our teams are aggressively executing targeted productivity initiatives, innovating products that command premium pricing, and leveraging our scale to optimize sourcing and production costs. Cost discipline remains a key driver of our strategy. We reduced adjusted SG&A by just under a million sequentially to $53 million this quarter, despite expenses tied to adult use in Ohio and upcoming dispensary In the quarter, the decline in revenue and the corresponding reduction in operating leverage led to $36 million in adjusted EBITDA, representing 22% of revenue in the quarter.
Charlie: Historically more limited license markets too with some larger operators, it's part of the business.
Greg: Reared its head a little earlier, but we're seeing it with operators in states, like Illinois, and Ohio, and Massachusetts. So the active management of it as key Greg anything else to add.
Charlie: It used to be.
Charlie: And I'm proud of the team for reducing our over the last quarter and also being able to bring some of those accounts back on line.
Charlie: Going forward.
Sharon: <unk> point.
Sharon: We're seeing both across independent operators, but also multistate operators, but we're also seeing is what it is we're seeing retailers made choices on is picking brands that have the best velocities. The best profit for stores and so we will not ship until we get them on a.
Charlie: Yeah.
Charlie: Okay that color I'll jump back into queue.
Charlie: Okay.
Charlie: Yeah.
Charlie: The next question comes from Frederico gamers of AGP capital market. Your line is open. Please go ahead.
Charlie: Yes.
Sharon: Productive.
Speaker Change: Yes. Good morning. Thank you for taking my question. So just following up on the.
Sharon: Payment plan in <unk>.
Sharon: Plans for our company as we feel good that the strength of our brands ensures that we are in a <unk>.
Charlie: Question about the wholesale accounts.
Charlie: Are you seeing any any further improvement or deterioration in regards to wholesale accounts in different market than specifically are there any markets that you can highlight where you're seeing this is more pronounced.
Sharon: Position that we get shipments or we don't ship and the role that our brands play in those stores is really important to them and so that's that's really the trend I think youre going to see is that these accounts are going to start building brands and operators that have high quality products that they need and then those operators workforce payment terms.
Sharon Schuler: Most importantly, we generated $30 million in operating cash flow this quarter, underscoring the strength of our business model and the discipline of our experts. We remain committed to our capital allocation framework, prioritizing operational efficiency, disciplined growth investments, and balance sheet strength. In Q1, we invested $6 million in CapEx, resulting in free cash flow of $25 million and an ending cash balance of $162 million. Our cash balance is now the strongest it's been in the past three years. We are progressing on schedule with our debt refinancing and are confident we'll complete it over the next few months.
Charlie: Sure.
Charlie: I'll start that.
Sharon: Yes.
Charlie: So yes, as I mentioned it it can be different from market to market, but it also can include.
Sharon: Thank you I appreciate that second question could.
Sharon: Could you talk about how youre looking at international markets your interest in Germany. Some.
Charlie: Multistate operators that have operations in multiple footprints. So it's a dynamic situation.
Sharon: Some of these other markets how should we think about.
Sharon: Your strategy. If you eventually choose to go international and what do you think would be the best path for Compressco.
Charlie: We've experienced.
Charlie: Experienced having having a footprint that is included in states like California, and Michigan over the years again those were markets, where this may be.
Sharon: Sure I might take that in reverse we're developing the thesis on what we think the best path would be which is just.
Charlie: Reared its head a little earlier, but we're seeing it with operators in states, like Illinois, and Ohio, and Massachusetts. So the active management of it as key Greg anything else yet.
Sharon Schuler: Given our strong and consistent cash generation, we expect to pay down a portion of the debt on refinancing, positioning us for an even stronger balance. Our improved financial profile is attracting solid refinancing terms, and we are focused on securing a structure that enhances flexibility and reduces our cost of capital over time.
Sharon: Part of our overall approach right now which is to learn as.
Sharon: As much as we can.
Speaker Change: We're cannabinoid company.
Charlie: <unk> point.
Speaker Change: And so we're going to look at any opportunity that presents itself.
Charlie: We're seeing both across independent operators, but also multistate operators, but we're also seeing is what it is we're seeing retailers made choices on.
Speaker Change: To make sure that we are positioning ourselves for long term leadership is a cannabinoid based company, whether thats in the U S, whether thats internationally or otherwise so yes, we're in the learning phase two early to let you know what we think is the best approach.
Charlie: The key brands that have the best velocities the best profit.
Sharon Schuler: Looking ahead to Q2, we expect revenue to be down slightly compared to Q1, largely due to one-time impacts related to Illinois' mandatory seed-to-sale system conversion taking place in May and June. As a result, we have seen an impact to wholesale sales in the state as retailers hold on new purchases and work through existing inventory in hopes of simplifying their conversion process. We expect this to normalize in future quarters once the conversion has taken place. Going forward, new dispensaries in Pennsylvania and Ohio, increased capacity in Illinois and Pennsylvania, and a strong lineup of product innovation and new inefficiencies should help offset the impact of price compression and competition in the back half of the year, particularly in Illinois.
Charlie: So the stores. So we will not ship until we get the money.
Charlie: Productive.
Speaker Change: We'll tell you that I think we see the development of these markets around the world. Similarly to the way that we've seen markets developed around the United States. They all have their uniqueness. They all have there.
Charlie: Payment plan and team in plans for our company as we feel good that the strength of our brands ensures that we are in a pause.
Charlie: <unk>.
Charlie: We jet shipments or we don't ship and the role that our brands play in those stores is really important to them and for US that's really the trend that youre going to see is that these accounts are in the circuit in brands and operators that have high quality products that they need and then those operators worse payment terms.
Speaker Change: Points of differentiation, which creates opportunity.
Speaker Change: Great. Thank you very much.
Speaker Change: The next question comes from Luke Hannan of Canaccord Genuity. Your line is now open. Please go ahead.
Charlie: Yeah.
Charlie: Thank you I appreciate that second question could.
Luke Hannan: Thanks, Good morning, I wanted to go back and talk about the <unk>.
Charlie: Could you talk about how youre looking at international markets your interest in Germany. Some.
Speaker Change: Seed to sale system conversion.
Sharon Schuler: We expect margin pressure in Q2 further amplified by the Illinois state conversion process and its impact on our state revenue mix. This will result in a couple hundred basis point impact in Q2. For the remainder of the year, we expect modest margin pressure with quarter-to-quarter fluctuations. On the expense side, we're squeezing every dollar to offset costs tied to growth, like new store openings and our build-out in Kentucky. As a result, we expect only modest increases in adjusted SG&A throughout the year. We have a strengthening balance sheet and strong cash flow with a plan to fund growth thoughtfully.
Speaker Change: That's ongoing right now correct me if I'm wrong I think the go live date is supposed to be July one.
Charlie: Some of these other markets how should we think about.
Charlie: Your strategy. If you eventually choose to go international and what do you think would be the best.
Speaker Change: Is everything in your views are tracking towards that or is there risk of potentially being slippage on that on that front and then secondly, maybe also related to that just to make sure. We understand correctly. So the ideas right now that retailers are purchasing more wholesale products because they are waiting for this conversion to happen and then just drawing down on existing inventory.
Charlie: Compressco.
Charlie: Sure I might take that in reverse we're developing the thesis on what we think the best path would be which is just.
Charlie: Part of our overall approach right now which is to learn as.
Speaker Change: Does that mean some of these sales basically are just deferred into the latter part of the year.
Charlie: As much as we can.
Charlie: We're cannabinoid company.
Charlie: And so we're going to look at any opportunity that presents itself.
Sharon Schuler: We're excited to show more in the back half of this year and into 2026.
Charlie: To make sure that we are positioning ourselves for long term leadership is a cannabinoid based company.
Speaker Change: At the beginning of June so that's why.
Charles Bachtell: With that, I'll turn it back over to Charlie. Thank you, Sharon. This industry remains complex and unpredictable, but we're staying focused on what we can control. Leading in our core markets, maintaining a fortress balance sheet, and being disciplined in our pursuit of new growth opportunities. We are in a better position than ever to not only weather regulatory and market uncertainty, but to capitalize on these challenges and emerge in a stronger, more advantaged position.
Charlie: Whether thats in the U S, whether thats internationally or otherwise so yes, we're in the learning phase two early to like you know what we think is the best approach what I will tell you that I think we see the development of these markets around the world. Similarly to the way that we've seen markets develop around the United States. They all have their uniqueness they all have their.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Apologies everyone. There at least in connection with the speakers. Please standby, while we reconnect them the call will resume shortly.
Charlie: Points of differentiation.
Charlie: <unk>, which creates opportunity.
Charles Bachtell: I want to thank the Cresco Labs team for another focused and successful quarter, and with that, we'll open it up for your questions. Thank you.
Charlie: Great. Thank you very much.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: The next question comes from Luke Hannan of Canaccord Genuity. Your line is now open. Please go ahead.
Operator: To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally.
Luke Hannan: Thanks, Good morning, I wanted to go back and talk about the seed to sale system conversion.
Speaker Change: That's ongoing right now correct me if I'm wrong I think the go live date is supposed to be July one.
Aaron Grey: The first question comes from Aaron Grey of Alliance Global Partners.
Speaker Change: Yes.
Speaker Change: [music].
Aaron Grey: Aaron, your line is now open, please go ahead. Hi, good morning. Thank you for the questions, and nice job with the cash conversion they've done for the last couple quarters.
Speaker Change: Everything in your views are tracking towards that or is there risk of potentially being slippage, but on that on that front and then secondly, maybe also related to that just to make sure. We understand correctly. So the ideas right now that retailers are purchasing more wholesale products because they are waiting for this conversion to happen and then just drawing down on existing inventories.
Aaron Grey: First question for me is I want to talk about Outlook for pricing pressure, whether or not you're seeing that somewhat stabilized or accelerated, and how the company looks at the long-term pricing trends, given what we've seen the pricing curve evolve like in different types of market structures, such as limited license markets that increasingly become more open, like in Massachusetts. So any type of commentary in terms of how you're now looking at the overall evolution of pricing pressure for different markets would be helpful.
Speaker Change: Does that mean some of these sales basically are just deferred into the latter part of the year.
Speaker Change: At the beginning of June so that's why.
Charles Bachtell: Hey, good morning, Aaron. I'll take that. So each market is, is different. As you mentioned, there's, there's a relatively common curve that we see when when states transition from medical to adult use. And depending on the tenure of the state, they're in different, they're in different positions as it relates to the curve. In our major markets, like Illinois, we're still seeing some pressure. There's no doubt about it. But the, you know, the opportunity that exists there is, as pricing compresses, demand tends to increase. And as an operator, it's up to us to make sure that we're prepared for the opportunity that that presents.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Apologies everyone. There are at least in connection with the speakers. Please standby, while we reconnect them to call will resume shortly.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: [noise].
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: [noise].
Charles Bachtell: And it's why you see us bringing additional capacity online in states like Illinois and Pennsylvania. So yeah, the different states are at different parts of that curve. And coming up with that curated custom approach to each market is key for managing this as we go forward.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [noise].
Aaron Grey: Thanks, that's helpful.
Aaron Grey: Second question for me, just in terms of the AR risk, how much of an impact do you believe that had on some of the software wholesale revenue compared to broader pricing pressure? I know it was called out in the prepared remarks.
Speaker Change: Sure.
Speaker Change: Yes.
Charles Bachtell: And then on the same topic, Can you talk about where you stand in the process? Have you cut off the accounts that were at risk? Has that list of accounts held constant? Or is a growing number of accounts that have been added to that where they are at risk?
Speaker Change: Okay.
Speaker Change: We're.
Speaker Change: We're back online now sorry for the technical difficulties here.
Speaker Change: <unk>.
Speaker Change: Not sure.
Charles Bachtell: Thank you. Sure, and I'll start that one too. Yeah, you know, AR management, as you've heard on our prepared remarks is key for us, we want to make sure that the revenue that we're producing as an organization is the highest quality that it can be. And so managing that across the footprint has been a focus of ours for the last couple of quarters in particular, it has resulted in having, unfortunately, to shut down some accounts that were significant contributors to our business. It's also resulted, though, in obtaining some workout plans with other accounts that have allowed us to turn them back on.
Speaker Change: It's clear on the end of the question before is it as it relates to international but international reevaluate same as we do any new market, where it can have annoyed based company.
Speaker Change: And whether the opportunity is in the United States or elsewhere, we approach it the same way and so we're learning as much as we can about the other opportunities that exist look as it relates to your then about the metric transition in Illinois. It actually is occurring now that conversion time was at the beginning of June.
Speaker Change: Which is why we saw the.
Speaker Change: The pullback in purchasing through May.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [noise].
Charles Bachtell: So something that, just like in any industry, and we've seen this in some markets that are more mature, more competitive markets, but it is coming into some of these historically more limited license markets, too, with some larger operators. It's a business, it needs to be actively managed, and I'm proud of the team for reducing AR over the last quarter and also being able to bring some of those accounts back online so they can be productive going forward.
Speaker Change: The transition is happening now this week.
Speaker Change: For the retail operators, which is why we see that risk the unfortunate risk in Q2 as it relates though to sort of picking back up.
Speaker Change: Ordering post conversion to metric we do believe it will come back we don't know, though if that will also.
Speaker Change: Me.
Speaker Change: I mean that there is a sort of an over pickup to account for the lost purchasing through may and the beginning of June.
Aaron Grey: Okay, great. Appreciate that color.
Aaron Grey: So I'll jump back into the queue.
Speaker Change: If you can hear me now, but I did want to follow up also on the 80% of transactions coming from Das shop is particularly impressive can you help parse out for us I mean, how much of that is.
Frederico Gomes: The next question comes from Frederico Gomes of AGB Capital Markets. Your line is now open, please go ahead. Good morning. Thank you for taking my questions. Just following up on the question about the wholesale accounts, are you seeing any further improvement or deterioration in regards to wholesale accounts in different markets? And specifically, are there any markets that you can highlight where you think this is more pronounced? Thanks.
Speaker Change: Okay.
Speaker Change: Assuming.
Speaker Change: We're back online now sorry for the technical difficulties here.
Speaker Change: We'll say online originated versus finished in store and then just purely.
Speaker Change: Not sure.
Speaker Change: Sort of online only and I imagine you've gleaned, some some sort of customer insights related to that as well since you you've had some nice <unk> dot shop in place now for for a pretty long period. So can you just share with US what have you learned more about your customer today versus perhaps.
Speaker Change: It is clear on the end of the question before is it as it relates to international but international reevaluate same as we do any new market, where it can have annoyed based company.
Speaker Change: Whether the opportunity is in the United States or elsewhere, we approach it the same way and so we're learning as much as we can about the other opportunities that exist look as it relates to Europe, then about the metric transition in Illinois actually is occurring now that conversion time is at the beginning of June.
Speaker Change: When you first opened your online platforms.
Speaker Change: I'll start and then hand over.
Frederico Gomes: Sure, Frederico, I'll start that. So, yes, as I mentioned, it can be different from market to market, but it also can include some multi-state operators that have operations in multiple footprints. So, it's a dynamic situation. We've experienced it, you know, having a footprint that has included states like California and Michigan over the years. Again, those were markets where this maybe reared its head a little earlier, but we're seeing it with operators in states like Illinois and Ohio and Massachusetts, so the active management of it is key.
Gregg: Gregg for more detail, but just to confirm all all of those transactions are completed.
Gregg: In the store, whether they are started online.
Speaker Change: Which is why we saw the.
Gregg: Or otherwise it all completes in the store and now as for the percentage that starts online and then maybe adds to it when they come into the store.
Speaker Change: The pullback in purchasing through May.
Speaker Change: The transition is happening now this week.
Gregg: You have detail on that but the vast majority of it.
Speaker Change: For the retail operators, which is why we see that risk the unfortunate risk in Q2 as it relates though to sort of picking back up.
Speaker Change: As you said, 80% online, but all completed in the store.
Speaker Change: And look you hit on it what we are so pleased about is the amount of data that we're able to collect from the customer transactions online. If you think about it.
Speaker Change: Ordering post conversion to metric we do believe it will come back we don't know, though that will also.
Speaker Change: Not only enables us to ensure that we're giving the best customer experience and education about.
Speaker Change: Meaning that there is a sort of an over pickup to account for the lost purchasing through may and the beginning of June.
Gregory Butler: Greg, anything else to add? I think to Charlie's point, we're seeing both across independent state operators, but also multi-state operators. But what we're also seeing is what it is forcing retailers to make choices on is picking brands that have the best velocities, the best profit for their stores. And so, we will not ship until we get them on a productive repayment plan and payment plans for our company. And so, we feel good that the strength of our brands ensures that we are in a position that we get payments or we don't ship. And the role that our brands play in those stores is really important to them.
Speaker Change: Existing products, but new products are coming online it allows us to do.
Speaker Change: Modeling to figure out if you come in and buy a type of product how do I get you to expand your basket and particularly we can point to Illinois, a Prime example of that where.
Speaker Change: If you can hear me now, but I did want to follow up also on the 80% of transactions coming from Das shop is particularly impressive can you help parse out for us I mean, how much of that is.
Speaker Change: Chopper trend our trips have slowed as door growth has outpaced market growth.
Speaker Change: We'll say online originated versus finished in store and then just purely.
Speaker Change: We've really been able to hold and grow our revenue and our stores due to basket sizing and getting more volume out of our basket because we're able to use this data online to drive customer performance so more to come.
Speaker Change: Sort of online only and I imagine you've gleaned, some some sort of customer insights related to that as well since you you've had some nice <unk> dot shop in place now for for a pretty long period. So can you just share with us.
Frederico Gomes: And so, that's really the trend that I think you're going to see, is that these accounts are going to start picking brands and operators that have high-quality products that they need, and then those operators will force payment terms. Thank you, appreciate that question.
Speaker Change: What have you learned more about your customer today versus perhaps.
Speaker Change: For us on that front and I think as we look to the future of how do we get more from our stores.
Speaker Change: When you first open your online platforms.
Speaker Change: The fact that we built this and the fact that we have that relationship with shoppers gives us a great platform to continue to grow.
Speaker Change: I'll start and then hand over to.
Gregg: Gregg for more detail, but just to confirm all all of those transactions are completed.
Speaker Change: Yeah.
Speaker Change: Got it I appreciate it thank you very much.
Charles Bachtell: Could you talk about how you're looking at international markets, you know, your interest in Germany, some of these other markets, how should we think about your strategy to eventually choose to go international? And what do you think would be the best path for Cresco? Sure, I might take that in reverse. We're developing the thesis on what we think the best path would be, which is just part of our overall approach right now, which is to learn as much as we can. We're a cannabinoid company. And so we're going to look at any opportunity that presents itself to make sure that we're positioning ourselves for long-term leadership as a cannabinoid-based company, whether that's in the U.S., whether that's internationally or otherwise.
Speaker Change: In the store, whether Theyre started online.
Speaker Change: The next question comes from Bill Cook of Roth Capital Partners. Your line is now open. Please go ahead.
Gregg: Or otherwise it all completes in the store now as for the percentage that starts online and then maybe add to it when they come into the store.
Bill Cook: Good morning, everyone.
Gregg: Detail on that but the vast majority of it.
Bill Cook: You talked a bit about the transition to seed to sale in Illinois, but I guess what are you expecting in New York State for the implementation of a seed to sale program and would that change how Chris go seize the opportunities there in New York.
Speaker Change: As you said, 80% online, but all completed in the store.
Speaker Change: And look you hit on it.
Gregg: So pleased about is the amount of data that we're able to collect some of these customer transactions online.
Gregg: If you think about it and not only enables us to ensure that we're giving the best customer experience and education about.
Bill Cook: Well, it's a good question.
Bill Cook: That is it is a unique element of New York that they currently do not have a required seed to sale tracking software.
Gregg: Existing products, but new products are coming online it allows us to do more.
Bill Cook: Our system, it's also where we see.
Gregg: Modeling to figure out if you come in and buy a type of product how do I get you to expand your basket and particularly we can point to Illinois, a Prime example of that where shop.
Bill Cook: A fair amount of risk.
Bill Cook: And the market itself.
Bill Cook: These markets are are successful because of the structure of them and when you don't have a seed to sale tracking software that just brings risk.
Gregg: Shopper trend our trips have slowed as door growth has outpaced market growth.
Charles Bachtell: So yeah, we're in the learning phase too early to let you know what we think is the best approach. What I will tell you is I think we see the development of these markets around the world similarly to the way that we've seen markets develop around the United States. They all have their uniqueness. They all have their points of differentiation, which creates opportunity.
Bill Cook: To the to the Voracity and sort of the trustworthiness of.
Gregg: We've really been able to hold and grow our revenue and our stores due to basket sizing and getting more volume out of our basket, because we're able to use that.
Bill Cook: Product that's in the marketplace if that change when it gets implemented it will influence the way that we think about New York, but there's other dynamics broader dynamics, including the fee structure in New York. So it's a data point and it's definitely one that would be included in further decision, making as it relates to the state.
Gregg: This data online to drive customer performance, so more to come.
Gregg: For us on that front and I think as we look to the future of how do we get more from our stores.
Frederico Gomes: Great, thank you very much.
Gregg: We built this and the fact that we have that relationship with shoppers gives us a great platform to continue to grow.
Luke Hannan: The next question comes from Luke Hannan of Canaccord Genuity. Luke, your line is now open, please go ahead. Thanks. Good morning.
Bill Cook: We currently have no further questions. So I'll hand back to Charlie for any final or closing remarks.
Gregg: Got it I appreciate it thank you very much.
Luke Hannan: I wanted to go back and talk about And I'm going to start with, I think, the first question. I think the goal of the Go Live is to see the sales system conversion. That's ongoing right now. Correct me if I'm wrong. I think the Go Live date is supposed to be July 1st. Is everything in your views a tracking towards that? Or is there a risk of there potentially being slippage on that front? And then secondly, maybe also related to that, just to make sure we understand correctly. So the idea is right now that retailers aren't purchasing more wholesale products because they're waiting for this conversion to happen.
Gregg: The next question comes from Bill Cook of Roth Capital Partners Bill. Your line is now open. Please go ahead.
Charlie: Yes, I just want to thank everybody for joining the call today.
Charlie: And for your patient in closing in this quarter, we look forward to talking to you about Q2 very soon thanks everybody.
Bill Cook: Good morning, everyone.
Speaker Change: You talked a bit about the transition to seed to sale in Illinois, but I guess what are you expecting in New York State for the implementation of a seed to sale program and would that change how Chris go seize the opportunities there in New York.
Charlie: This concludes today's call. Thank you for joining you may now disconnect your lines.
Luke Hannan: And then just drawing down on existing inventories, does that mean some of these sales basically are just deferred into the latter part of the year? the beginning of June.
Speaker Change: Yeah.
Speaker Change: Well, it's a good question.
Speaker Change: That is it is a unique element of New York that they currently do not have a required seed to sale tracking software.
Speaker Change: Our system, it's also where we see.
Speaker Change: Fair amount of risk.
Speaker Change: And the market itself.
Operator: So that's why I'm Apologies everyone, we are losing connection with the speakers. Please stand by while we reconnect them. The call will resume shortly.
Speaker Change: These markets are are successful because of the structure of them and when you don't have a seed to sale tracking software that just brings risk.
Speaker Change: To the to the veracity in sort of the trustworthiness of.
Speaker Change: Product that's in the marketplace if that change when it gets implemented it will influence the way that we think about New York, but there's other dynamics broader dynamics, including the fee structure in New York.
Speaker Change: It's a data point and it's definitely one that would be included in further decision, making as it relates to the state.
Speaker Change: Yeah.
Speaker Change: We currently have no further questions. So I'll hand back to Charlie for any final or closing remarks.
Charlie: Yes, I just want to thank everybody for joining the call today.
Charlie: And for your outpatient in closing in this quarter, we look forward to talking to you about Q2 very soon thanks everybody.
Charlie: This concludes today's call. Thank you for joining you may now disconnect your lines.
Charlie: [music].
Charlie: Yeah.
Charlie: Yeah.
Charlie: Okay.
Charles Bachtell: Okay, assuming we're back online now. Sorry for the technical difficulties here. Not sure if it was clear on the end of the question before as it as it relates to international but international we evaluate same as we do any new market we're a cannabinoid based company. And whether the opportunity is in the United States or elsewhere, we approach it the same way. And so we're learning as much as we can about the other opportunities that exist. Luke, as it relates to your question about the metric transition in Illinois, it actually is occurring now, that conversion time was the beginning of June, which is why we saw the pullback in purchasing through May, that the transition is happening now, this week, for the retail operators, which is why we see that risk, the unfortunate risk in Q2.
Charles Bachtell: As it relates, though, to sort of picking back up of ordering post-conversion to metric, we do believe it'll come back. We don't know, though, if that will also mean that there is a sort of an over-pickup to account for the lost purchasing through May and the beginning of June.
Luke Hannan: And if you can hear me now, but I did want to follow up also on the 80% of transactions coming from sunnyside.shop is particularly impressive. Can you help parse out for us, I mean, how much of that is... We'll say online originated versus finished in store and then just purely. sort of online only. And I imagine you've gleaned some some sort of customer insights related to that, as well. We've had Sunnyside.shop in place now for a pretty long period, so can you just share with us, I mean, what have you learned more about your customer today versus perhaps first opened your online.
Charles Bachtell: I'll start and then hand over to Greg for more detail. But just to confirm, all all of those transactions are completed in the store, whether they're started online, or otherwise, it all completes in the store. Now as for the percentage that starts online, and then maybe adds to it, when they come into the store. I have detail on that. But the vast majority is, as you said, 80% online, but all completed. And Luke, you hit on it, what we are so pleased about is the amount of data that we're able to collect from these customer transactions online.
Charles Bachtell: If you think about it, it not only enables us to ensure that we're giving the best customer experience and education about existing products, but new products are coming online. It allows us to do modeling to figure out, if you come in and buy a type of product, how do I get you to expand your basket? And particularly, we can point to Illinois as a prime example of that, where shopper trends or trips have slowed as store growth has outpaced market growth. But we've really been able to hold and grow our revenue in our stores due to basket sizing and getting more volume out of our baskets because we're able to use this data online to drive customer performance.
Charles Bachtell: So, more to come for us on that front, and I think as we look to the future of how do we get more from our stores. The fact that we've built this and the fact that we have that relationship with shoppers gives us a great platform to continue.
Luke Hannan: Got it. Appreciate it. Thank you very much.
Bill Kirk: The next question comes from Bill Kirk of Roth Capital Partners. Bill, your line is now open, please go ahead.
Bill Kirk: Good morning, everyone. You talked a bit about the transition to seed-to-sale in Illinois, but I guess, what are you expecting in New York State for the implementation of a seed-to-sale program? And would that change how Cresco sees the opportunities there in New York? Oh, it's a good question. That is, it is a unique element of New York that they currently do not have a required seed to sale tracking software or system. It's also where we see a fair amount of risk in the market itself. these markets are successful because of the structure of them. And when you don't have a seed-to-sale tracking software that just brings risk to the veracity and sort of the trustworthiness of product that's in the marketplace, if that change, when it gets implemented, it will influence the way that we think about New York, but there's other dynamics, broader dynamics, including the fee structure in New York.
Charles Bachtell: So it's a data point, and it's definitely one that would be included in further decision-making as it relates to this.
Charles Bachtell: We currently have no further questions, so I will hand back to Charlie for any final or closing remarks. Yeah, I just want to thank everybody for joining the call today. And for your patience in the closing of this quarter. We look forward to talking to you about Q2 very soon. Thanks, everybody.
Operator: This concludes today's call. Thank you for joining. You may now disconnect your line.