Q2 2025 Terrascend Corp Earnings Call
Frederico Gomes: Hi, good evening. Congrats on the great quarter here. Thanks for taking my questions. I want to ask two questions about Michigan. First, can you provide any color, broadly, in terms of how much you think you could be able to proceed from those sales?
Ziad Ghanem: Yeah. Hey, Fred, Ziad here. We're in the middle of negotiation. We have multiple bids, multiple parties that are interested. We expect when we are done at the end of the year with Michigan, that we'll have a net proceed, but we're not sharing what the size of it yet just because of the negotiation and everything that is happening. We have a clear view on some of the proceed on some assets, and others we have multiple options on. We're still negotiating. I'll hold back on some numbers. We can't share anything at this point.
Frederico Gomes: Perfect. I guess the second question on Michigan is just if you could talk about why now? Why did you decide to exit the state now? If you could help us understand that. I know that it's maybe one of the most challenging markets in the US, but maybe why is it that you think that maybe the market's not going to turn around soon? Also, if you could comment on some of the lessons that you learned from that state. Thanks.
Good afternoon. I will be your conference operator. Today at this time, I would like to welcome everyone. To terra's second quarter, 2025 Financial results conference call. I will now turn the call over to Walter Pinto manager of kcsa strategic Communications for introductions. Please go ahead.
Thank you, operator and good afternoon. Welcome to the Terrace and second quarter, 2025 Financial results conference call.
Estimates and assumptions relating there too.
Ziad Ghanem: Sure, Fred. Look, why now, we entered Michigan, and we had a clear strategy, clear view made back then based on the fact that when we entered Michigan, a unlimited market where we came in, gross margin was in the low 20%. Our phase 1 was to improve gross margin to the 40% and then build scale on that gross margin and then really generate cash. We came in, we accomplished the first thing, and we did get gross margin up. What we learned and what we faced are a few things in Michigan that were insurmountable: the price collapse that was driven by the illicit market, the supply versus demand, the illicit market, the synthetic hemp. We looked at so many opportunities in there to create scale, and we quickly learned that it was not for the benefit of our shareholders.
The company's expectations regarding its growth prospects in new and existing markets such as Ohio, and New Jersey. Its m&a strategy, anticipated timing and benefits regarding the sale of the company's assets in Michigan and the expectations regarding regulatory reform and the potential benefits thereof.
each for, we're looking to save me, discussing today's call subject to risk and uncertainties that could cause actual results to differ materially from those projected in such statements,
tax results in the timing of certain events May differ materially from the results or timing predicted or implied by such far looking statements and reported results should not be considered as an indication of future performance.
Additional information regarding these factors appear under the heading risk factors and the company's form 10K filed with the Securities and Exchange Commission. And other filings that the company makes with the SEC from time to time which are available at sec.gov
On theater plus and on the company's website at terasen.com.
Ziad Ghanem: Look, we decided that deploying our capital and our focus on the remaining of our business was the right thing to do. That's why we made that decision today. What have we learned from Michigan? We learned in Michigan that anytime that you cannot regulate the market, and when you hear the regulators saying, telling the legislators that, if you don't give me the power to regulate it, we're not going to be able to have a successful market. It goes back to the challenges we have in this industry, the illicit market, the synthetic hemp, the unlevel playing field. Those are all things that are out of our control, that will continue be true anytime that when they're not happening, you're not going to be able to have successful business.
Before we're looking statements in this call speak, as of today's date and the company undertakes. No, obligation to update or revise, any of these statements.
Also, during the call, the company may present both gaps and non-gaap financial measures at reconciliation of non-gaap to gaap measures is included in today's earnings, press release and our quarterly report on form 10q for the quarter ended. June 30th 2025, which you can find in the company's investor relations website or on the FCC and see you there.
Plus websites, I would now like to introduce Mr. Jason Wilde, please go ahead. Jason
Good evening everyone. And thank you for joining us in the second quarter after an extensive evaluation. We made the decision to exit the Michigan Market. Michigan, has been an extremely difficult market and we determined that, our resources can be better utilized in our other geographies.
Exiting the Michigan Market will enhance our financial profile as demonstrated in the strong financial results from continuing operations that we reported for the quarter.
Frederico Gomes: Thank you. Appreciate that.
Our process to sell all of our Michigan assets is ongoing with plans, to use the net proceeds to pay down debt.
Operator: Thank you. Your next question comes from the line of Andrew Semple from Ventum Financial.
We expect our exit from Michigan to be substantially completed in the second half of 2025.
Andrew Semple: Thank you and good evening. Congrats on the solid Q2 results here from the continuing operations. I'll stay on the topic of Michigan, just because, I think with the announcements that you'd be divesting from Michigan, the company also announced some cost reductions, some headcount reductions associated with that divestiture. I just want to be clear, is that already reflected in the Q2 financials because Michigan has been moved to discontinued operations? Do you think there's going to be some cost-cutting in the continued operations that will be seen in subsequent quarters as a result of this announcement? Could you clarify that for me, please?
Second quarter revenue from continuing operations total of 65 million. A slight decrease year-over-year, while gross margins improved. 150 basis points year-over-year to 51.1%
GNA expenses for the second quarter were 21 million and 32.3% of Revenue down from 22.6 million and 333.7% of Revenue in the same quarter last year.
All of this contributed to generating adjusted ebita from continuing operations of 16 million dollars for the second quarter and adjusted. It, even a margin of 24.6%
Regenerated positive cash flow from continuing operations of 7.3 million for the second quarter and positive free cash, flow of 5 million.
Ziad Ghanem: Sure. Andrew, Ziad here. Yes, it is reflected in the discontinued operation. The way you should think of our OpEx, going forward with continued operation is, we will maintain it around 30% of our revenue or slightly below, and that's something that we can see we're confident of and we're proud of for a company our size, just because our size is smaller. Being that 29% to 30% is what I plan and the team is determined to stay going forward.
This. Now marks our 12th consecutive quarter of positive cash flow from continuing operations and eighth consecutive quarter of positive free cash flow.
Andrew Semple: Got it. That's helpful. Maybe if you could comment on your own M&A pipeline. We're seeing some distressed operations and portfolios and pieces of assets come to market. Any more recent updates on what you're seeing out there in terms of the M&A landscape? Maybe just to tack on to that, it'd be helpful to know if there's any conditions or terms before you can draw on the $35 million M&A debt facility. That would be helpful as well.
Solid performance in the Northeast markets of New Jersey, Maryland and Pennsylvania were the key drivers of these results in New Jersey. We maintained our Market leadership position. According to bbsa in Maryland, we are on a 75 million Revenue run rate with gross profit margins in the high 50s and in PA our retail and wholesale Revenue, grew sequentially, as we head towards potential adult use in the state on the m&a front, we announced the definitive agreement in early May to acquire Union, Shield dispensary in New Jersey, a well situated dispensary with limited competition within a 10 mile radius, which will bring our total dispensaries in the state to 4 Union show currently generates over 11 million in annualized, revenue and will be immediately accretive to ibida and cash flow. We plan to vertically integrate Union show after closing, which is expected to further enhance. Margins provide, our full array of State leading products and Brands to local customers
And enhance our leading market share position in the state.
Jason Wild: Sure. Hi, this is Jason. Certainly, I think we've seen recently at least one company being put into a receivership. We think that there's probably more in the coming months that'll go into receivership as well. We're certainly on the speed dial of a lot of these bankers that are helping to put together some options for these assets, and we're looking at them. We've also, I think, been pretty good about keeping our powder dry over the last year or so. We've done a couple of small private transactions. We've kept our powder dry relative to doing some larger things because we felt like some of the stuff was going to trade at much lower prices. We think we're getting there. Our open map gives us a major advantage, we think, versus a lot of our other competitors that might be looking at some of these deals.
We are evaluating additional opportunities in New Jersey and have a robust pipeline, which we continue to work through in a disciplined manner.
As we sit today, we anticipate that by the end of 2025, we will sign multiple additional transactions in the state.
In may, we closed on the ratio cannabis acquisition. Our first dispensary in Ohio, a recently converted still Nathaniel state
Our goal in Ohio is to assemble a leading retail footprint by acquiring high-quality stores at the right price just as we did in Maryland.
This will allow us to leverage our existing infrastructure and sgna to drive higher profitability.
Subsequent to the end of the quarter, we completed a 79 million non-dilutive upsizing to our senior secured syndicated Term Loan with Focus growth.
And the remainder is designated for future growth initiatives.
This financing extends, the maturity of all of our senior secured debt until late 2028.
Jason Wild: We can take a bigger piece of the map of some of these multi-state operators versus a lot of our competitors. We also have the backing of our lender, FocusGrowth. In terms of your question about are there any requirements relative to that additional $35 million? We just have to get it approved by them, but there's no hard and fast requirements relevant to that. The FocusGrowth team, they've been very encouraging of us to go out and get some more deals and to scale up this company. As you can see by the margins that we reported today, we feel like they rank up there even with our competitors that are a lot larger. We're really excited to see what happens once we can bring in substantial additional revenue.
It also provides us access to an additional uncommitted Term Loan of up to 35 million. For strategic m&a. This transactional, Flex focused gross confidence in terra's vision and strategy and I'd like to thank the team for their continued support.
On the topic of regulatory reform. We are closely monitoring the developments at both the federal and state levels.
The federal regulatory environment seems to be showing some positive movement, but as we have mentioned, many times we have operated and will continue to operate our business independent of reform.
In Pennsylvania, we continue to see support for the possible passage of an adult use bill.
When adult use implementation does happen, we will be prepared to meet the increase in demand by bringing additional capacity. Online at our 150,000 square foot facility.
Our Pennsylvania canopy space is larger than the canopy at all of our other facilities combined
Jason Wild: We think that we can really have best-in-class margins amongst, not just similar-sized companies, but any size company in the space.
regarding our share repurchase program for up to 10 million dollars.
Andrew Semple: That's great. Very helpful, and look forward to seeing what comes your way the next few quarters. I'll hop back into queue.
During the quarter, we had 34 trading days in our open trading window during this period. We repurchased 535,000 shares at a weighted average price of 29 cents USD per share.
Jason Wild: Thank you.
Ziad Ghanem: Thanks, Andrew.
Operator: Thank you. Again, if you would like to ask a question, please press star, followed by 1 on your touch tone phone. Your next question comes from the line of Pablo Zuanic from Zuanic & Associates. Your line is now open.
we will continue executing on this buyback program while balancing this with other Capital allocation priorities including growth capex Investments, as well as further m&a,
Rahul Sarugaser: Good afternoon, everyone. This is Rahul on for Pablo. We have 2 questions. First, in terms of the recent First Circuit court appeals decision, can you remind us about the next steps and timetable regarding an eventual decision by the Supreme Court?
And lastly, before I turn it over to Ziad, as previously announced, Keith Stauffer, our former CFO, recently left the company to pursue a career opportunity outside of the cannabis industry.
Upon Keith's departure, Alyssa Campbell, our Senior Vice President of Corporate Finance and Accounting, assumed the title of Interim Chief Financial Officer, reporting to Zed.
Jason Wild: Sure. I have to be careful here because a lot of that is confidential and we don't want to necessarily tip the public to our strategy. You should assume that we are going to file cert in the coming months to be heard at the Supreme Court.
We have initiated a comprehensive search for a permanent CFO and will provide an update into course.
On behalf of the board and the entire terrorists and team. I want to thank Keith for his leadership and many contributions to support Terror Sons growth over the past 5 years.
Rahul Sarugaser: Got it. Thank you. The second question is, with the quick rise in the number of stores in New Jersey, can you talk about the impact on your leading stores? Can you give a sense of how much constant contraction you have seen in revenue per store in each of these states?
He played a pivotal role in our financial foundation and reporting, driving strategic growth and navigating the complexities of the cannabis industry.
He assembled a highly experienced team and implemented industry-leading financial and operating controls to support our future growth.
We wish him continued success in his next chapter.
Jason Wild: Sure. Ziad, do you want to take that?
Ziad Ghanem: Yeah, I'd love to. Look, we have seen sequential retail stores across all our states, including New Jersey. Look, the way we look at New Jersey as, or in retail in general, we win. Did I say growth?
I also want to congratulate Alyssa on her new role. I'd love to brings over 20 years of financial experience to Tara. She has been a key member of our team for several years and has been instrumental in shaping our financial strategy. Alyssa worked closely with Keith and was integral in building the company's Financial infrastructure including completion of a companywide implementation.
Jason Wild: You just said sequential. Yeah.
Ziad Ghanem: Yeah. Sequential growth in all our retail, including New Jersey. Thanks, Jason and Alisa.
Of what is believed to be the industry's only fully integrated seed to sale Erp system.
Jason Wild: Sure.
Ziad Ghanem: Yeah, that's good. The way we win in retail, we win store by store, and we really get a chance to, and the team watch the behavior of the consumer and what's happening in the trade area for each store. Whether there's a new competitor that's opening, whether the basket size average, whether it's the foot traffic, whether it's the increase is happening in premium versus value. Really, we deploy specific targeted strategy in each store or in each state, not just across the board, a blanket discount. I'm very happy with the retail performance. Initially, when retail stores jumped from the 17 stores to the 100, 150 store in New Jersey, many of those stores were close to our trade area, and we saw some impact.
She has led many areas of financial management as a company, including accounting, reporting, tax, treasury, FP&A, and operations. Her deep knowledge of our operations, supported by a strong team, will ensure continuity as we move forward.
With that. I'll now turn the call over to Zia to provide an update across our key markets Z.
Thank you, Jason, and hello everyone.
Let me walk you through our performance in each of our key markets. This quarter beginning with New Jersey,
in the second quarter of 2025, we maintained a leadership position in the state according to bdsa
Read. Their revenue was up slightly quarter over quarter according to let alerts and independent Market measurement source.
All 3 of.
Ziad Ghanem: Since then, the new stores are opening outside the 20-mile radius, if you will, of trade, and we haven't seen that impact. We have, for the last few quarters, not only seen stabilizing our same store sales, but also improvement, like we saw sequentially between Q1 and Q2.
Retail locations in New Jersey, ranked in the top.
15 terms of total units sold during the second quarter out of more than 220 dispensaries now, open across the state.
Our Philipsburg store was number 3 in the state in unit sales and number 2 in Revenue.
Rahul Sarugaser: Got it. Thank you.
Ziad Ghanem: Thank you.
While wholesale Revenue declined, quarter over quarter, our core metrics remain solid.
Operator: Thank you. Your next question comes from the line of Sonny Randhawa from Seaport Global. Your line's now open.
Sonny Randhawa: Thanks for taking my question. Congrats on the quarter. Just I guess expanding a little bit on New Jersey. Where do you think you guys stand right now in terms of just pricing compression, just normalization of that market? Is it still a couple quarters away, or do you think we're getting close to normalization to where we can actually start seeing sequential growth in that market?
Penetration rate and average order. Size, remain stable, while we continue to hold a leadership position in the market and are selling to an increasing number of stores across the state.
The quality and consumer. Appeal of Our Brands is driving this leading Market position with terrorists and ranking amongst the top 3 producers in the flower.
Vapes and Edibles categories.
Kind tree is driving positive, quarter of a quarter growth in flower vape and pre-rolls, as well as Valhalla and edibles.
Ziad Ghanem: Yeah, look. Let's look at the numbers, Sonny. When New Jersey turned adult use, the average price per pound at retail was around $8,000, right? Today, we're in the mid-$4,000 or so, $4,700, $4,800 average, dollars per pound at retail. We have seen major pricing pressure. Now, I think we're close, and I think what you described, are we close to where that pressure will start subsiding? I think so. Why do I say this? It's a supply and demand. The last two or three months, the state has shown growth overall as a market. At the same time, we haven't seen any rapid growth in supply when it comes to cultivations. We've seen some new brands come in. Brands have to prove themselves. They come in, some of them will stay, some of them will fail.
Made we signed a definitive agreement to acquire Union shell and 11 million Revenue run rate dispensary in New Jersey.
which upon closing will bring our total number of dispensaries in the state to 4
We plan to vertically integrate this location into our operations in order to capture the full synergies of this opportunity.
Longer term. We intend to acquire up to 6 additional dispensaries. Extending, our retail footprint to the maximum amount of 10 in the state.
The 3 Dale expansion. Would further increase our leadership in New Jersey?
Give us additional scale.
And lead to improved margins and profitability as we vertically integrate each new store.
Expansion of our cultivation and Manufacturing capabilities at our bun. Facility is now complete.
Ziad Ghanem: We are not seeing any major cultivation addition that's happening in the state. When you have the volume in the state going up, the supply and demand stay balanced, that should reflect into stabilization of the price, and I think we're seeing this.
The expansion is providing us with additional flour capacity and the ability to offer a broader product portfolio.
As well as enable us to supply additional stores as they are acquired.
Jason Wild: Yeah, the only thing I would add, and I certainly don't have any concrete facts or numbers around this, but we've certainly seen over the last several months that there has been a major renewed effort or a major effort towards closing down illicit grows around the country. If the government sort of stays the course on that front, that could help, not just in New Jersey, but in lots of states around the country. We're obviously not only competing with the regulated market and our licensed competitors in the regulated market, but we're competing with the illicit market as well. It seems like under this administration, there seems to be finally some enforcement against that.
Turning to Maryland. Our success story in this state continues.
As a reminder we entered the Maryland Market in 2021 through the acquisition of a small cultivation facility with negligible revenue and then acquired 4 dispensary during the first half of 2023.
Now that we are 2 years into being vertically, integrated in the state. We are pleased with the results that we have achieved.
During the second quarter of 2025.
Retail Revenue increased quarter over quarter while whole Revenue remains steady.
Total revenue in Maryland, increased sequentially across both channels for the sixth consecutive quarter to an annual run rate of 75 million.
Ziad Ghanem: That's great. Go ahead, Jason.
Sonny Randhawa: I guess for the second question, just moving on to Maryland. Maryland, obviously a very strong market for you. It's been structurally, I guess, challenged just with the rollout of the social equity program and the strict cap or the restriction on five-year moratorium in terms of reselling. I think there's been movement on the social equity program, and I think the state's looking to add 1,000 licenses over the next couple of years. Can you just give us an update on where that social equity program stands and how you see that affecting your business in Maryland?
Our verticality and increased efficiencies have allowed us to extend our gross profit margin from 25% in 2023 to the high 50s in the second quarter of 2025.
Remember, we have made all of this progress in Maryland, despite having just entered the market upon adult, use conversion only 2 years ago.
To meet the consumer demand and expected growth. We completed capex project to expand cultivation in capacity by an additional 50% at our Maryland facility. We completed the first harvest in June and expect this additional capacity, to further fuel growth and market share gains.
Ziad Ghanem: Yeah. Look, I don't have the exact details to share, Sonny, on timing or when do we expect to see some of those being added. We'll continue to stay close. We'll learn all those facts as they become clearer by the state. I think we've seen it in New Jersey, right? The way things are going to work, licenses are going to be given in the thousands. Some municipalities will buy in, some will not. It will take some capital, and it will take some efforts for those who are going to open, to open. What I will expect to see is similar to what we've seen in New Jersey, around 100 to 110 stores that will open per year. If they open close to your stores, you'll see impact on your retail.
In Pennsylvania, total revenue, grew 6.9% quarter over quarter, wholesale, Revenue, grew 13.2%. Quarter over quarter and redo Revenue was up 5.3% sequentially driven by the strong performance of our country, brand as well as concentrates and edibles.
We have a fully built out large-scale cultivation and Manufacturing facility in Pennsylvania with no need for additional investment.
As the prospect of an adult use launch becomes greater. We have plans in place to bring on available capacity, and will be ready for the increased demand resulting from adult use
In Michigan as Jason mentioned earlier after an extensive evaluation, we have made the decision to exit the market.
Ziad Ghanem: If you have a good, strong wholesale game, from a quality perspective, from a brand equity or brand acknowledgement, from a ground game, from a team that has done well in wholesale, and that has grown wholesale the way we grew it in Maryland over the last two years, then the pressure that you will see in retail will benefit from it in wholesale. In Maryland, we have a large facility. We have a brand-new facility that is really putting out some of the best quality flower, and that will serve us well with all those non-vertical players that will come online. In summary, I would say it would be similar to other markets like New Jersey.
Exiting Michigan will unlock value for terrorism and enable us to focus on our core. Northeastern us markets, including our recent entry into Ohio.
Speaking of Ohio during the second quarter, we closed on our acquisition of ratio cannabis, a well situated and profitable dispensary, which contributed a little less than 2 months of Revenue in the quarter.
We are fully integrating the suspensory into our existing operations.
Today, the financial performance of this business has exceeded our expectations.
Our goal in Ohio is to assemble a leading retail footprint by acquiring high-quality stores at the right price just as we did in Maryland.
Jason Wild: Yeah. The one thing that popped into my I agree with all of that. On top of that, as Ziad has pointed out to me many times in the past, when a program first starts up, and we've certainly experienced this in New Jersey. When a program first starts and you're one of the stores that are open for day 1, and a customer comes in and gets over sort of the stigma of going into a store, what ends up happening, what we experienced in New Jersey is that even when stores open up down the block, there's still a high degree of stickiness to our stores because they still have a stigma. They got over it to go to the first store. They don't necessarily want to go to a second store.
This will allow us to leverage our existing infrastructure and sgna to drive higher profitability.
In summary.
There are sent continued to make strong progress during the second quarter.
Our business remains solid.
Due to strong business, fundamentals.
A targeted m&a, strategy.
Our recently, completed financing resulting in new material debt maturing for the next several years.
Giving this, I'm confident in our future.
I would now like to turn the call over to Alisa to provide a financial update.
Jason Wild: If we're doing our job well, they want to come back to our store because they're getting good value there and being treated well. I think that could be the same situation in Maryland. The stores that open later, they certainly impact overall sales, but there is a major stickiness and a major advantage to being in the market first.
Thank you. Good afternoon everyone.
I'm pleased to participate in My First Harrison earnings call as interim CFO and appreciate the opportunity to serve in this capacity, while we conduct our search for the company's next permanent Financial leader.
Ziad Ghanem: That is a great point.
Sonny Randhawa: Great. I'll jump back. Thank you.
Ziad Ghanem: Thanks, Sonny.
Operator: Thank you. There are no further questions at this time. Turning over back to Jason for closing remarks.
Let me briefly share my background. I bring 20 years of experience in finance beginning with a focus on public company controllership and expanding over time to Encompass all aspects of Finance with a strong operational Foundation of various roles
Jason Wild: Thank you, everybody, for joining us here today. We will see you again in November when we report Q3 earnings.
I entered the Cannabis industry 7 years ago and joined terrorists in 2020.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
During my tenure, I've LED Financial initiatives across the organization while also taking on operational and m&a roles.
Throughout this journey, I work closely with Keith staffer as we've transformed, our finance functions in the operational infrastructure including becoming an SEC filer uplifting to the TSX Exchange.
The conversion to us gaap and the implementation of our stocks program.
It has been truly rewarding to be a part of this transformation.
I believe strongly in our vision, the core markets in which we operate our growth opportunity and most of all our entire team.
Now, I'll take you through our financial results for the second quarter of 2025.
The results that I'll be going over today, have already been filed with both Cedar PL and with the SEC and all results that I will reference today are stated in US dollars.
Given the recent announcement of our decision to exit the Michigan Market.
All financials discussed today, reflect results from continuing operations unless otherwise noted
Net revenue for the second quarter of 2025 with 65 million compared to 67.2 million for the second quarter of 2024.
Representing a slight decrease year-over-year and in line with the expectations communicated on the last quarter's earnings conference call.
Retail Revenue increased 1% year-over-year.
Increase in retail Revenue was driven by a partial quarter of sales from the recent ratio acquisition in Ohio.
Which was offset by Price compression in the New Jersey Market.
Wholesale, Revenue declined, 10.8% year-over-year.
growth in Maryland was offset by a decline in New Jersey, while Pennsylvania remains steady
Growth profit margin for the second quarter of 2025 was 51.1% as compared to 49.6% for the second quarter of 2024 driven by continued strong performance in both New Jersey and Maryland.
GNA expenses for the second quarter of 2025 were 21 million and 32.3% of Revenue.
Compared to 22.6 million and 333.7% of Revenue. In the second quarter of 2024 gaap, net loss from continuing operations. For the second quarter of 2025 was 6.4 million compared to a net loss of 6.3 million in the second quarter of 2024.
Adjusted Ava from continuing operations, with 16 million for the second quarter of 2025 or 24.6% of Revenue compared to adjusted Ava from continuing operations. For the second quarter of 2024 of 17.3 million or 25.7% of Revenue.
Turning to the balance sheet and cash flow.
Cash and cash equivalents were 26.7 million as of June 30th 2025.
Net cash provided by continuing operations in the second quarter of 2025 with 7.3 million compared to 17 million, which included an 8.4 million tax refund. In the second quarter of 2024,
this represents our 12th consecutive quarter of positive, cash flow from continuing operations.
Capex spending was 2.3 million in the second quarter, mainly related to the expansion of our Maryland and New Jersey facilities.
Was completed in June.
Also, the expanded edibles production and greenhouse expansions in New Jersey were both completed in the second quarter of 2025.
Free cash flow was million dollars in the second quarter of 2025 compared to 15 million in the second quarter of 2024 representing, our eighth consecutive quarter of positive free cash flow.
During the quarter, we distributed 1.3 million to our New Jersey, minority partners, and paid down half a million dollars of debt.
Subsequent to quarter end. We closed on an upside senior secured syndicated Term Loan of 79 million.
68 million of which was used to retire existing indebtedness across other lenders, with the remainder designated for future growth initiatives.
As part of this transaction, an additional uncommitted Term Loan facility. In an aggregate principal amount of up to 35 million will be available for future m&a.
This financing extends for all our senior secured debt maturities until late 2028,
It also provides us further Financial flexibility to execute on our growth strategy, including organic growth initiatives, as well as strategic m&a.
Now, I'll provide an update on our share repurchase program.
In August of last year, we announced our first ever share repurchase program for up to 10 million.
Demonstrating our confidence and Terraces future, and our commitment to enhancing shareholder value.
During the second quarter, we repurchased 535,000 of our common shares.
We will continue executing on the share repurchase program while balancing this and other capital allocation priorities.
Looking ahead to Q3. We anticipate Revenue to be flat to up low, single digit, sequentially growth, profit, margin to be slightly higher sequentially and further GNA expense reduction quarter over quarter, as we continue to realize the savings from our ongoing initiative.
In closing our second quarter results, Mark another period of solid revenue and gross profit margin performance.
With adjusted even a margins among the best in the industry for our size.
In addition, we have now delivered a 12th consecutive quarter of positive cash flow from continuing operations.
And our eighth consecutive quarter of positive free cash flow.
We look forward to sharing our continued progress on the business during our next quarterly call.
This concludes our prepared remarks. I'd now like to turn it over to the operator for questions.
Thank you, ladies and gentlemen, we will not begin the question and answer session. Should you have a question please? Press star. Followed by the number 1 on your touchtone phone. You will hear a prompt that your hand has been raced. Should you wish to decline from the following process? Please press star followed by the number 2. If you are using a speaker phone, please, leave the answer before pressing any keys.
1 moment, please for your first question.
Your first question comes from the line of Frederick Rico Gomez of ATV Capital markets your lines now open.
Hi. Good evening. Uh, congrats on the, uh, great quarter here. Uh, thanks for taking my questions. Uh, I want to ask two questions about, uh, Michigan. Um,
The first, uh, can you provide any caller, uh, you know, broadly in terms of how much you think could be able to proceed from from those sales?
Yeah. Hey, Fred Zaid here, uh, we're in the middle of negotiation. We have multiple bids multiple parties that are interested. Uh, we we expect when we, uh, are done at the end of the year with Michigan, that we'll have a net proceed but we're not sharing what the size of it yet, just because of the negotiation and everything that is happening. We have a clear view on some of the proceed on some assets and others, we have multiple options on, uh. So we're we're still, uh, we're still negotiating. So I I'll hold back on some numbers, we can share anything at this point.
Perfect. Uh,
And I, I guess the second question.
Uh, if you could
Is not going to turn around soon. Uh, and also, um, you know, if you could comment on, uh, some of the lessons that that you from,
From that state, thanks.
Sure uh Fred look why now is uh we entered Michigan and we had a clear strategy. Clear if you uh made back then based on the fact that when we entered Michigan unlimited Market, where we came in gross margin was in the low 20, our Phase 1 was to improve gross margin to the 40s and then build scale uh on that on that gross margin and then really generate cash. Uh, we came in, we accomplished the first thing and we did uh, get gross margin up but uh what we learned and what we faced are few things in Michigan, that were unsurmountable. The price collapsed. That was driven by the illicit Market. Uh, the supply versus demand, uh, the the, the the illicit Market, uh, the the synthetic, uh, hand, we looked at so many opportunities in there, to, to create scale. And we quickly learned that, uh, that, that, that that, that, that it, it, it, it was not it.
Was not, uh, for the benefits of our shareholders, our shareholders. So, uh, look, we, we, we decided that deploying our capital and our focus on the remaining of our business was the right thing to do. Uh, and that's why we, that's why we made that decision. Uh, today,
Uh, what have we learned from Michigan? Uh, you know, we learned in Michigan that anytime, uh, the, the, you cannot regulate the market. And when you hear The Regulators say, and telling the the legislators that if you don't give me the power to regulate it, we're not going to be able to have a successful successful market. So it it goes back to the challenges we have in this industry, the illicit Market, the synthetic Camp the the the unlevel playing field. Uh, those are all things that are out of our control, uh, that that, uh, that, you know, will continue to be through any time that when, when, when, when they're not happening, you're not going to be able to have successful business.
Thank you, appreciate that.
Thank you. Your next question comes from the line of Andrew sample. From Venton Financial your lines now open,
Thank you and good evening. Uh, congrats on the solid, uh, future results here. Can we continue in operations? Uh, I'll stay on the topic of Michigan. Uh, just because, uh, I think with the announcements that you'd be divesting from Michigan, uh, the company also announced, uh, some cost reduction, some headcount reductions associated with that divestiture. I just want to be clear, is that already reflected, uh, in the Q2 financials because Michigan has been moved to discontinued operations? Or do you think there's going to be some cost cutting in the continued operations? Uh, that we'll be seeing in subsequent quarters. As a result of this announcement. That could you clarify that for me, please?
Sure Andra Zaid here. Uh, yes, it is reflected in the discontinued operation. And the way you should think of our Opex, uh, going forward with continued operation is, uh, we will maintain it around, uh, 30% of our revenue or slightly below. And that's something that, uh, uh, we can see. We're confident of and we are proud of for a company, our size, just because uh our size is smaller. So being that 29 to 30% is what I uh plan and the team is determined to stay going forward.
Got it, that's helpful. And then maybe, if you could comment on your own m&a pipeline, I mean, we're seeing some distress operations, and you know, uh, portfolios and and
You know, pieces of assets come to Market, um, any, uh, more recent updates on what you're seeing out there in terms of the m&a landscape. And then maybe just to tack on to that, uh, uh, it'd be helpful to know if there's any conditions or terms before you can draw on the uh 35 million, uh m&a uh debt facility, that would be helpful as well.
Kept our powder dry relative to doing, doing some larger things because we felt like, um, you know, some of the stuff was going to, uh, was going to trade at a, at much lower prices. Uh, we think we're getting there, uh, our open map gives us a major advantage. We think versus a lot of our other competitors. That might be looking at some of these deals. Uh, we can take, uh, uh, a bigger piece of the map of some of these multi-state operators versus, uh, a lot of our competitors. Uh, and, uh, we also have the backing of our of our lender, uh, focused growth. Uh, in terms of your question about, uh, uh, are there any requirements relative to that additional 35 million? Uh, it is, uh, we we just have to get it approved by them, but there's no hard and fast. Um, you know, requirements relative to that and, uh, the focus growth team really. Uh, they've been very encouraging, uh, of us to go out in the and get some more deals and to scale up this company. Uh, as you can see, by today's, uh, the margins that we reported today, we feel like
Like they rank, uh, up there or even with, uh, our competitors that are a lot larger. But, uh, we're really excited to see what happens, uh, once we can, uh, bring in, uh, substantial, uh, additional revenue. We think that, uh, we can really have, uh, best-in-class margins, uh, amongst, you know, not just, uh, similar-sized companies, but any size company in the space.
That's great. Very helpful and look forward to seeing what comes your way the next few quarters. I'll hop back into queue, thank you. Thanks Andrew.
Thank you again. If you would like to ask a question please press star, followed by the number 1 on your touchtone phone. Your next question comes from the line of Pablo zanik from zanik. Associate, your line is now open.
Good afternoon, everyone. This is Rahul on for Pablo, we have 2 questions first, in terms of the recent First Circuit Court appeals decision, can you remind us about the next steps in timetable regarding and eventual decision by the Supreme Court?
Sure. Um, a lot, I have to be careful here because a lot of that is uh, is confidential and we don't want to necessarily uh tip the public to our strategy. But uh you should assume that we are going to file, a cert in the, uh, in the coming months to, you know, to be heard at the Supreme Court.
Got it. Thank you. And the second question is, with the quick rise of the number of stores in New Jersey? Can you talk about the impact on your leading stores? And can you give a sense of how much content contraction you have seen, uh, in Revenue per store in each of these, uh, States?
Sure. See if you want to take that. Yeah, I'd love to, uh, look. We have seen sequential retail stores across all our state, including New Jersey. Uh, look, the way we look at New Jersey as or or in retail, in general, we went, uh,
I said, did I say growth you you just said sequential yeah. Sequential sequential growth and all our retail including New Jersey. Thanks Jason. And also yeah, that's good. Uh, so so the way we went in retail, we went store by store and we really, we really get a chance to and the team, watch the behavior of the consumer and what's happening in the trade area for each store. Uh, whether there's a new competitor that's opening whether the basket size average, whether it's the food traffic, whether it's, uh, uh, the, the, the, the, the, the, the, the, the, the, the, the increase is happening in Premium versus value. And really, we deploy, uh, specific targeted strategy, uh, in each store or in each state, not just across the board, a, a blanket discount. So I'm very happy with the retail uh, performance. Uh, initially, when retail stores jumped from the 1750 store in New Jersey, many of those stores were closed to our trade area and we saw some impact. Uh, but since since then,
The new stores are opening outside the 20 M, 20 mi radius if you will of trade and we haven't seen that impact. And we have, for the last few quarters, have not only seen centralizing our same store sales but also Improvement. Uh like we saw sequentially between q1 and Q2.
Thank you. Your next question comes from the line of Sunny Rhonda from SEO C Port, Global your lines. Now open,
Actually start seeing uh, sequential growth in that market.
Yeah. Look, uh
Let's look at the numbers, sunny, when, when New Jersey turn adults, use the every average price per pound.
Uh, at retail it was around $8,000, right? Uh, today we are in the mid-$1,000s or so, $4,800 average, uh,
Dollars per pound at retail. So we have seen major, uh, uh, pricing pressure. Uh, now, I think we're close and I think what you described are, we close to where that pressure will start subsiding, I think. So, why do I say this? It's it's a supply and demand the last 2 or 3 months. The state has shown growth overall as a market. But at the same time we haven't seen uh the any rapid growth growth in Supply when it comes to cultivation. We've seen some new brands come and brands have to prove themselves they come in, some of them will will stay some of them will fail but we are not seeing any major cultivation Edition that's happening in the state. So when you have uh the volume in the state, going up the supply and demand stay balanced, that should reflect into stabilization of the price and I think we're seeing this.
And yeah, the, the only thing I would add and it's uh, I certainly don't have any concrete facts or numbers around this. But uh, We've certainly seen over the last several months that there has been a major, uh, renewed effort or or a major effort towards uh, closing down. Illicit grows, uh, around the country. Uh, that could. If if we, if the government sort of stays the course on that front, that could help, uh, you know, not just in New Jersey, but in, uh, but in, uh, you know, lots of states are are around the country. We are certainly, we're obviously not only competing with the regulated market and, uh, and our licensed competitors and regulated market. But we're complete competing with the illicit Market as well. And it seems like under this Administration. Uh, there seems to be finally uh, some enforcement uh uh, against that, that's a great point.
I I, I guess for the, for the second question just, uh, uh, moving on to Maryland, uh, Maryland obviously very strong market for you. Um,
It's, it's been structurally. I guess challenged just with uh, uh, the roll out of the, uh, of the social Equity program, and you know, the strict cap and or the strict the restriction on, uh, 5 year. Uh,
Uh, a moratorium in terms of reselling. I think there's been movement on the social equity program, and I think the state's looking to add a thousand licenses over the next couple of years. Can you just give us an update on where that social equity program stands and how you see that affecting your business in Maryland?
Yeah, look look. I don't have the exact details to share sunny and timing. Or when do we uh expect to see some of those being added, we'll continue to stay close. We'll learn all those facts as they become clearer by the state. But uh, you know, I think we've seen it in New Jersey, right? The way things are going to work, licenses are going to be given in the in the in the thousands uh some municipalities will buy in some will not. It will take uh some capital and it will take some efforts for those who are going to open to open. And and what I will expect to see is similar to what we've seen in New Jersey around 1002 stores that will open per year. Uh, and if they open close to your stores, then you will see impact on your retail. But if you have a good strong wholesale game, uh, from equality perspective, from a brand, uh, uh, Equity or brand acknowledgement from a ground game, from a team that has done well,
In in wholesale, and that has grown wholesale the way. We grew it in, Maryland, over the last 2 years, then the pressure that you will see in retail will benefit uh, from it in Wholesale in Maryland. Uh, we have, uh, we have a, a, a large facility. We have a brand new facility that is really putting out some of the best quality flour and that will serve us. Well, with all those non-vertical players that will come online. Uh, so in summary, I would say, I would say it would be similar to other markets, like New Jersey. Yeah.
Uh, what ends up happening? And what we experienced in New Jersey, is that even when stores open up down the block, there's still a high degree of stickiness to our stores because that's where they, you know, because they still have a stigma, they got over it to go to the first store. They don't necessarily want to go to a second store. And if we're doing our job, well uh they want to come back to our store because they're, uh, you know, they they're getting good value there and uh, being treated well. So I think that could be the same situation in Maryland. The stores that open later, they certainly, uh, impact overall sales, but there is a major, uh, stickiness and A major advantage to being, uh, to being in the market first, okay? That's a great point.
Great. I'll jump back. Thank you.
Thanks, Sonny.
Thank you.
There are no further questions at this time. Turning over back to Jason for a closing remarks.
Thank you everybody for joining us. Uh, here today, we will see you again in November when we report uh, Q3 earnings.
Maybe. And this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.