Q1 2026 Vext Science Inc Earnings Call

May 21, 2026

Speaker #2: After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star 1 on your telephone keypad.

Speaker #2: Should you need assistance during the conference call, you may reach out to an operator by pressing star, then 0. I would now like to turn the conference over to Ms. Priyam Chakraborty.

Speaker #2: Please go ahead, ma'am. Thanks, operator. Good morning, everyone, and thank you for joining us today. VEXT's first quarter 2026 financial results were released earlier this morning.

Priyam Chakraborty: Thanks, operator. Good morning, everyone, and thank you for joining us today. Vext Q1 2026 financial results were released earlier this morning. The press release, financial statements, and MD&A are available on SEDAR+ as well as on the Vext website at vextscience.com. We would like to remind listeners that portions of today's discussion include forward-looking statements and that forward-looking statements are included in today's filings. There can be no assurance that these forward-looking statements will prove to be accurate, or that management's expectations or estimates of future developments, circumstances, or results contained therein will materialize. Risks and uncertainties that could affect future developments, circumstances, or results are detailed in the MD&A and Vext's other public filings that are made available on SEDAR+, we encourage listeners to read those risk factors in conjunction with today's call.

[Company Representative] (Vext Science): Thanks, operator. Good morning, everyone, and thank you for joining us today. Vext Q1 2026 financial results were released earlier this morning. The press release, financial statements, and MD&A are available on SEDAR+ as well as on the Vext website at vextscience.com. We would like to remind listeners that portions of today's discussion include forward-looking statements and that forward-looking statements are included in today's filings. There can be no assurance that these forward-looking statements will prove to be accurate, or that management's expectations or estimates of future developments, circumstances, or results contained therein will materialize. Risks and uncertainties that could affect future developments, circumstances, or results are detailed in the MD&A and Vext's other public filings that are made available on SEDAR+, we encourage listeners to read those risk factors in conjunction with today's call.

Speaker #2: The press release, financial statements, and MD&A are available on Cedar Plus as well as on the VEXT website at vextscience.com. We would like to remind listeners that portions of today's discussion include forward-looking statements and that forward-looking statements are included in today's filings.

Speaker #2: There can be no assurance that these forward-looking statements will prove to be accurate, or that management's expectations or estimates of future development, circumstances, or results will materialize.

Speaker #2: Risks and uncertainties that could affect future development circumstances or results are detailed in the MD&A and VEXT other public filings that are made available on Cedar Plus.

Speaker #2: And we encourage listeners to read those risk factors in conjunction with today's call. As a result of these risks and uncertainties, the development circumstances or results predicted in forward-looking statements may differ materially from actual development circumstances or results.

Priyam Chakraborty: As a result of these risks and uncertainties, the developments, circumstances, or results predicted in forward-looking statements may differ materially from actual developments, circumstances, or results. This call also includes non-IFRS financial information, and such non-IFRS financial measures are subject to the disclosure and reconciliation included in our press release disseminated earlier today, as well as the MD&A. Forward-looking statements made during this conference call are made as of the date of this call. VEXT disclaims any intention or obligation to update or revise such information, except as required by applicable law. VEXT financial statements are presented in US dollars, and the results discussed during this call are in US dollars. I will now pass the call over to Eric Offenberger, Chief Executive Officer of VEXT.

[Company Representative] (Vext Science): As a result of these risks and uncertainties, the developments, circumstances, or results predicted in forward-looking statements may differ materially from actual developments, circumstances, or results. This call also includes non-IFRS financial information, and such non-IFRS financial measures are subject to the disclosure and reconciliation included in our press release disseminated earlier today, as well as the MD&A. Forward-looking statements made during this conference call are made as of the date of this call. VEXT disclaims any intention or obligation to update or revise such information, except as required by applicable law. VEXT financial statements are presented in U.S. dollars, and the results discussed during this call are in U.S. dollars. I will now pass the call over to Eric Offenberger, Chief Executive Officer of VEXT.

Speaker #2: This call also includes non-IFRS financial information and such non-IFRS financial measures are subject to the disclosure and reconciliation included in our press release disseminated earlier today.

Speaker #2: As well as the MD&A. Forward-looking statements made during this conference call are made as of the date of this call. VEXT disclaims any intention or obligation to update, revise, such information.

Speaker #2: Except as required by applicable law, VEXT financial statements are presented in U.S. dollars, and the results discussed during this call are in U.S. dollars.

Speaker #2: I will now pass the call over to Eric Offenberger, Chief Executive Officer of VEXT.

Speaker #3: Thanks, Priyam. Good morning, everybody, and thank you for joining our first quarter 2026 financial results conference call. I'm joined today by Trevor Smith, VEXT CFO.

Eric Offenberger: Thanks, Priyam. Good morning, everybody, and thank you for joining our Q1 2026 financial results conference call. I'm joined today by Trevor Smith, VEXT CFO. VEXT delivered a solid start to 2026, with profitability gains in Ohio more than offsetting continued pressure in Arizona, reflecting the benefits of the strategic decisions we have been making across the business. During the quarter, revenue increased 5% year-over-year to $12.2 million, while gross profit more than doubled to $5.5 million. Adjusted EBITDA was $3.6 million on 29% margins, up sharply from where we ended last year. Most importantly, the underlying business continued to generate cash. Cash from operations was $1.6 million in the quarter, despite temporary working capital headwinds and continued drag from Arizona cultivation operations ahead of the Eloy shutdown.

Speaker #3: VEXT delivered a solid start to 2026 with profitability gains in Ohio more than offsetting continued pressure in Arizona. Reflecting the benefits of the strategic decisions we have been making across the business.

Speaker #3: During the quarter, revenue increased 5% year over year to $12.2 million, while gross profit more than doubled to $5.5 million. Adjusted EBITDA was 3.6 million.

Speaker #3: On 29% margins, up sharply from where we ended last year. Most importantly, the underlying business continued to generate cash. Cash from operations was $1.6 million in the quarter despite temporary working capital headwinds and continued drag from Arizona cultivation operations ahead of the Eloy shutdown.

Speaker #3: For us, operating cash flow remains one of the clearest indications that our strategy is working in the business of scaling efficiently. Ohio continues to be the primary growth driver for VEXT.

Eric Offenberger: For us, operating cash flow remains one of the clearest indications that our strategy is working and the business is scaling efficiently. Ohio continues to be the primary growth driver for Vext. Based upon available two-month data through February 2026, statewide Ohio sales increased more than 20% year over year, with March data not yet fully available. Our Ohio revenue increased 34% to $8.2 million, supported by contributions from the additional dispensaries acquired last year, improving cultivation performance. The strategy from here is the same one we've been executing. Open the right stores in the right places, supply them out of our own highly efficient cultivation, and convert that into cash. Every store we add makes the proven model stronger. At the same time, the Ohio market is beginning to mature.

Speaker #3: Based upon available two-month data through February 2026, statewide Ohio sales increased more than 20% year over year, with March data not yet fully available.

Speaker #3: Our Ohio revenue increased 34% to $8.2 million supported by contributions from the additional dispensaries acquired last year improving cultivation performance. The strategy from here is the same, one we've been executing.

Speaker #3: Open the right stores in the right places. Supply them out of our own highly efficient cultivation and convert that into cash. Every store we add makes the proven model stronger.

Speaker #3: At the same time, the Ohio market is beginning to mature. Competition continues to increase as additional dispensaries come online across the state. Particularly in Columbus, in pricing pressure is gradually emerging in certain categories.

Eric Offenberger: Competition continues to increase as additional dispensaries come online across the state, particularly in Columbus, and pricing pressure is gradually emerging in certain categories. This is a dynamic we know well. We already navigated through a maturing adult use market in Arizona and understand the importance of disciplined operations. The competitive advantage of strategic retail locations, controlled capital allocation, and maintaining flexibility around pricing and product mix. In our experience, operators that remain disciplined and focused on cash flow generation will continue to separate themselves as markets mature. That has been Vext's approach from the beginning, and we believe it positions us well for long-term success in Ohio as the market continues to evolve. Through 2026, we remain focused on completing the Ohio retail build-out, expanding cultivation capacity to support that retail network, and increasing operating leverage as the platform scales.

Speaker #3: This is a dynamic we know well. We already navigated through a maturing adult use market in Arizona and understand the importance of disciplined operations.

Speaker #3: The competitive advantage of strategic retail locations controlled capital allocation and maintaining flexibility around pricing and product mix. In our experience, operators that remain disciplined and focused on cash flow generation will continue to separate themselves as markets mature.

Speaker #3: That has been VEXT's approach from the beginning, and we believe it positions us well for long-term success in Ohio as a market continues to evolve.

Speaker #3: Through 2026, we remain focused on completing the Ohio retail build-out, expanding cultivation capacity to support that retail network, and increasing operating leverage as the platform scales.

Speaker #3: We expect to open our sixth dispensary in Fairfield in the second quarter, and our seventh in Columbus later this year, with the eighth license advancing through the regulatory process into early 2027.

Eric Offenberger: We expect to open our sixth dispensary in Fairfield in Q2 and our seventh in Columbus later this year, with the eighth license advancing through the regulatory process into early 2027. Ohio remains our highest return growth opportunity, and our capital allocation remains focused accordingly. In Arizona, the final harvest of Eloy was in the first week of May, and the cultivation exit is underway. We expect it to be complete by the end of Q2 2026. The Arizona wholesale market is oversupplied, and prices have compressed to the point where our capital is better deployed elsewhere. As we said on the last call, this was a decisive move, and we expect the related cash flow drag to continue to improve as the year progresses. What's left is the part of Arizona that works.

Speaker #3: Ohio remains our highest return growth opportunity and our capital allocation remains focused accordingly. In Arizona, the final harvest of Eloy was in the first week of May, and the cultivation exit is underway.

Speaker #3: We expect it to be complete by the end of the second quarter of 2026. The Arizona wholesale market is oversupplied and prices have compressed to the point where our capital is better deployed elsewhere.

Speaker #3: As we said on the last call, this was a decisive move, and we expect the related cash flow drag to continue to improve as the year progresses.

Speaker #3: What's left is the part of Arizona that works. Two dispensaries in the Phoenix Metro, a light manufacturing footprint, and the flexibility to source and price competitively rather than absorb our own oversupplied production.

Eric Offenberger: Two dispensaries in the Phoenix Metro, a light manufacturing footprint, and the flexibility to source and price competitively rather than absorb our own oversupplied production. We expect that this refocused strategy will cut substantial operating costs and will improve the overall margin and cash flow profile of our Arizona business. Overall, we continue to operate with discipline across both of our core markets while focusing capital on our highest return opportunities. As we move through 2026, our priority is executing on the next phase of growth in Ohio while further streamlining our Arizona operations to enhance margins, strengthen cash flow generation, and support long-term shareholder returns. With that, I'll turn it over to Trevor for a closer look at the financials. Trevor?

Speaker #3: We expect that this refocused strategy will cut substantial operating costs and will improve the overall margin and cash flow profile of our Arizona business.

Speaker #3: Overall, we continue to operate with discipline across both of our capital on our highest-return opportunities. As we move through 2026, our priority is executing on the next phase of growth in Ohio while further streamlining our Arizona operations to enhance margins, strengthen cash flow generation, and support long-term shareholder returns.

Speaker #3: With that, I'll turn it over to Trevor for a closer look at the financials. Trevor?

Speaker #4: Thanks very much, Eric. Overall, the first quarter of 2026 reflected continued improvement in profitability, margin profile, and cash generation of the business as our Ohio retail platform continued to scale and contribute to larger share of consolidated revenue.

Trevor Smith: Thanks very much, Eric. Overall, the Q1 2026 reflected continued improvement in profitability, margin profile, and cash generation of the business as our Ohio retail platform continued to scale and contribute a larger share of consolidated revenue. Revenue for the quarter was $12.2 million, up 5.2% year-over-year, driven by continued strength in Ohio, which more than offset ongoing pricing pressure in Arizona. Ohio revenue increased 34% year-over-year to $8.2 million, following the contribution from the additional dispensaries acquired after the Q1 2025. While Arizona revenue declined 24% as the market continued to experience wholesale compression and oversupply. Within the consolidated mix, wholesale revenue declined approximately 50% year-over-year to $1.7 million.

Speaker #4: Revenue for the quarter was $12.2 million, up 5.2% year over year. This was driven by continued strength in Ohio, which more than offset ongoing pricing pressure in Arizona.

Speaker #4: Ohio revenue increased 34% year over year to $8.2 million, following the contribution from the additional dispensaries acquired after the first quarter of 2025. While Arizona revenue declined 24% as the market continued to experience wholesale compression and oversupply.

Speaker #4: Within the consolidated mix, wholesale revenue declined approximately 50% year over year to $1.7 million. This reflects our continued retail-first prioritization in Ohio, as well as temporary supply tightness following a full Q4 sell-through of inventory.

Trevor Smith: This reflects our continued retail-first prioritization in Ohio, as well as temporary supply tightness following a full Q4 sell-through of inventory. With cultivation yields now stepping up, we expect Ohio wholesale to rebuild from here. Gross profit increased to $5.5 million, representing a 45.4% margin, compared to $2.3 million or 19.7% in the prior year period. Gross profit before fair value adjustments was $4.4 million or 35.8% margin, compared to $4 million or 34.4% margin in the prior year period. The improvement reflects continued operating leverage in Ohio, improving cultivation performance, and a greater contribution from retail sales.

Speaker #4: With cultivation yields now stepping up, we expect Ohio wholesale to rebuild from here. Gross profit increased to $5.5 million, representing a 45.4% margin. Compared to $2.3 million or $19.7% in the prior year period.

Speaker #4: Gross profit before fair value adjustments was $4.4 million, or a 35.8% margin, compared to $4.0 million, or a 34.0% margin, in the prior year period. The improvement reflects continued operating leverage in Ohio, improving cultivation performance, and a greater contribution from retail sales.

Speaker #4: Adjusted EBITDA was $3.6 million in the quarter, representing a 29.3% margin. This compares to $2.1 million, or a 15% margin, in the fourth quarter of 2025, and $3.4 million, or a 29.6% margin, in the first quarter of 2025.

Trevor Smith: Adjusted EBITDA was $3.6 million in the quarter, representing a 29.3% margin, compared to $2.1 million or 15% margin in Q4 2025, and a $3.4 million or 29.6% margin in Q1 2025. As we noted on our last call, Q4 profitability was impacted by timing-related inventory fair value adjustments associated with the pricing pressure in Arizona. Those impacts normalized in Q1, supported by improved Ohio flower pricing and continued retail mix improvements. Net loss narrowed to $0.9 million, compared with a net loss of $3.3 million in Q1 2025, an improvement of approximately $2.4 million or 73%. This reflects higher gross profit, improved adjusted EBITDA, and continued discipline across the business.

Speaker #4: As we noted on our last call, fourth-quarter profitability was impacted by timing-related inventory fair value adjustments associated with the pricing pressure in Arizona.

Speaker #4: Those impacts normalized in Q1, supported by improved Ohio flower pricing and continued retail mix improvements. Net loss narrowed to $0.9 million, compared with a net loss of $3.3 million in the first quarter of 2025.

Speaker #4: An improvement of approximately $2.4 million, or 73%. This reflects higher gross profits, improved adjusted EBITDA, and continued discipline across the business. Cash from operations was $1.6 million in the first quarter, representing a cash flow margin of 13%.

Trevor Smith: Cash from operations was $1.6 million in Q1, representing a cash flow margin of 13%. Operating cash flow reflected working capital movements, including the timing of accounts payable payments and lower miscellaneous income collections, as well as the final period of Arizona cultivation drag ahead of the Eloy shutdown. We expect those Arizona-related headwinds to begin reversing in Q2 following the completion of the final Eloy harvest, with the full cash flow benefit expected in Q3. On the balance sheet, the uncertain tax position liability increased to $10.6 million at 31 March 2026, compared with $8.1 million at 31 December 2025. The increase reflects a $2.5 million adjustment related to the differences between our 2025 tax provision and our 2025 tax returns, which are still being finalized.

Speaker #4: Operating cash flow reflected working capital movements, including the timing of accounts payable payments and lower miscellaneous income collections, as well as the final period of Arizona cultivation drag ahead of the Eloy shutdown.

Speaker #4: We expect those Arizona-related headwinds to begin reversing in the second quarter, following the completion of the final Eloy harvest, with the full cash flow benefit expected in the third quarter.

Speaker #4: On the balance sheet, the uncertain tax position liability increased to $10.6 million at March 31, 2026, compared with $8.1 million at December 31, 2025.

Speaker #4: The increase reflects a 2.5 million adjustment related to the differences between our 2025 tax provision and our 2025 tax returns, which are still being finalized.

Speaker #4: This amount may be revised as the company completes its tax filings later this year. As we noted on our Q4 call, the DEA's April 2026 final rule includes a recommendation for retroactive Section 280(e) tax relief, which, if enacted, could materially reduce this liability over time.

Trevor Smith: This amount may be revised as the company completes its tax filings later this year. As we noted on our Q4 call, the DEA's April 2026 final rule includes a recommendation for retroactive Section 280E tax relief, which if enacted, could materially reduce this liability over time. No adjustment has been made to the 31 March 2026 financial statements because the rule is considered a non-adjusting subsequent event under IAS 10. Excluding the UTP liability, which IFRS mandates be classified as current despite uncertain timing of repayment, the company's working capital is positive. We ended the quarter with approximately $5.5 million in cash, up from approximately $5.1 million at year-end 2025. We believe the business is well-positioned as we move through 2026.

Speaker #4: No adjustment has been made to the March 31, 2026 financial statements because the rule is considered a non-adjusting subsequent event under IAS 10. Excluding the UTP liability, which IFRS mandates be classified as current despite uncertain timing of repayment, the company's working capital is positive.

Speaker #4: We ended the quarter with approximately $5.5 million in cash, up from approximately $5.1 million at year-end 2025. We believe the business is well positioned as we move through 2026.

Speaker #4: With Ohio continuing to scale and Arizona transitioning to a more capital-light, retail-focused model, we expect improving operating leverage, margin expansion, and cash flow generation through the balance of the year.

Trevor Smith: With Ohio continuing to scale and Arizona transitioning to a more capital-light retail focus model, we expect improving operating leverage, margin expansion, and cash flow generation through the balance of the year. Thank you everyone for joining us for our Q1 2026 Financial Results Conference Call. I'll now turn it over to the operator for your questions.

Speaker #4: Thank you, everyone, for joining us for our first quarter 2026 financial results conference call. I'll now turn it over to the operator for your questions.

Speaker #5: Thank you. We will now begin the question-and-answer session. If you would like to join the question queue, please press star, then one, on your telephone keypad, you will hear a tone acknowledging your request.

Operator: Thank you. We will now begin the question and answer session. The first question will come from Pablo Zuanic with Zuanic & Associates. Please go ahead.

Speaker #5: If you are using a speakerphone, please pick up your handset before pressing any keys. And to withdraw your question, please press star, then two.

Speaker #5: And we'll pause for a moment as callers join the queue. In the first question will come from Pablo Zuenic with Zuenic & Associates. Please go ahead.

Speaker #6: Thank you. And good morning, everyone. Look, just from a modeling perspective, can you remind us with the Fairfield Store opening in Q2 and the one opening the seventh store opening late in 2026, just remind us where do you believe that those two stores will be relative to your other five stores?

Pablo Zuanic: Thank you, and good morning, everyone. Look, just from a modeling perspective, can you remind us with the Fairfield store opening in Q2 and the seventh store opening, late in 2026, just remind us where do you believe that those two stores will be relative to your other five stores, in line, above, below? How long does it take to ramp to whatever your target level may be? Is it a six-month, 12-month process? Let's start with that first.

Speaker #6: In line, above, below, and how long does it take to ramp to whatever your target level may be? Is it a six-month, 12-month process?

Speaker #6: Let's start with that first.

Speaker #7: Good morning, Pablo. Thanks for the question. Excuse me. The Fairfield store, we anticipate, should be one of our more active stores, and if not, the best store in the chain at this point in time.

Eric Offenberger: Good morning, Pablo. Thanks for the question. Excuse me. The Fairfield store we anticipate should be one of our more active stores and if not the best store in the chain at this point in time. Its ramp, we think it's going to go pretty quick, based upon where its traffic pattern is and stuff like that. The lack of advertising in Ohio, it's going to be based upon traffic and people seeing the store and that. We think that's going to go really quick, a month and a half, where it'll start to really be a good performing store, if not immediately. We're very optimistic. In fact, the state's there today inspecting that store, so hopefully we get good news later today on that store. The other store, the seventh store, is going to open in Columbus.

Speaker #7: It's ramp. We think it's going to go pretty quick. Based upon where its traffic pattern is and stuff like that, and the lack of advertising in Ohio, it's going to be based upon traffic and people seeing the store and that.

Speaker #7: So we think that's going to go really quick—so, a month, month and a half—where it'll start to really be a good-performing store, if not immediately.

Speaker #7: So we're very optimistic. In fact, the states there today inspecting that store. So hopefully, we get good news later today on that store. The other store, the seventh store, is going to open in Columbus.

Speaker #7: We're still messing around with permitting and stuff like that in Columbus and going back and forth. But that store, we think, will ramp in about three to four months, like the normal stores do, and then start to stabilize.

Eric Offenberger: We're still messing around with permitting and stuff like that in Columbus and going back and forth. That store, we think, will ramp in about 3 months to 4 months like the normal stores do and then start to stabilize. We anticipate that store to be a top performer also because as we've talked previously on calls, it'll have drive-thru capabilities, and our existing Columbus store is really, it's boxed in where it sits. It can't get as much parking there it could use. It can't have a drive-thru and stuff like that. It's not as convenient. We anticipate these other stores to do better than an existing Columbus store. It's just not going to have as much competition to it given where it's located.

Speaker #7: We anticipate that store to be a top performer also because, as we've talked about previously on calls, it'll have drive-through capabilities. Our existing Columbus stores, really, it's boxed in where it sits.

Speaker #7: It can't get as much parking though it could use. It can't have a drive-through and stuff like that. So it's not as convenient. So we anticipate these other stores to do better than an existing Columbus store.

Speaker #7: And it's just not going to have as much competition to it given where it's located.

Speaker #6: Right. Thank you. And then just also a reminder, I know that last year there were already some changes in the non-medical program that were positive.

Pablo Zuanic: Right. Thank you. Just also a reminder, I know last year there were already some changes in the non-medical program that were positive. Is there anything else that's still pending that could be implemented later this year, or in terms of reg changes in Ohio, everything's been done?

Speaker #6: Is there anything else that's still pending that could be implemented later this year, or in terms of reg changes in Ohio? Or is it already—everything has been done?

Eric Offenberger: It's really tough to say, Pablo. I mean, from what we know, all the changes are done. They're redoing their packaging. Right now we're like everybody else, resubmitting product. They've changed some of the dosing requirements on edibles within the fall, so we'll see some of that come out. I think they're fairly done from what we're seeing. There has been a little bit of change in language on some of the MSA stuff, so I think they're still looking through some of that. Yet to be determined would be my best estimate right now. I think there's probably going to still be the same issues going on everywhere. What's going to happen with hemp beverages and stuff like that as they continue to clarify.

Speaker #7: It's really tough to say, Pablo. I mean, from what we know, all the changes are done. They're redoing, they're packaging. Right now, we're like everybody else, resubmitting product.

Speaker #7: They've changed some of the dosing requirements on edibles within the fall, so we'll see some of that come out. But I think they're fairly done from what we're seeing.

Speaker #7: There has been a little bit of change in language on some of the MSA stuff. So I think they're still looking through some of that.

Speaker #7: So yet to be determined. It would be my best estimate right now. And I think there's probably going to still be the same issues going on everywhere, what's going to happen with hemp beverages and stuff like that as they continue to clarify.

Speaker #7: And Ohio has done a good job that way. But I think there's some stuff still being discussed at the federal level on that.

Eric Offenberger: Ohio's done a good job that way, but I think there's some stuff still being discussed at the federal level on that.

Speaker #6: Right. Thank you. And then just a couple more. I mean, we probably agree that Ohio, although it will get more competitive, it will not be as bad as Arizona in terms of pricing.

Pablo Zuanic: Right. Thank you. Just a couple more. We probably agree that Ohio, although it will get more competitive, it will not be as bad as Arizona in terms of pricing. Maybe you can try to substantiate that assessment better if I'm right about what I'm saying. The only nuance is that I find that in the case of Arizona, you have a cap of 169 stores. Ohio is going to be 400. I know it's a bigger state. Ohio may be better on the cultivation side, but on retail may be a lot more competitive. Maybe more color in terms of how you would compare Ohio and Arizona and why Ohio won't become Arizona in terms of poor economics, at least on the cultivation side. Thanks.

Speaker #6: But maybe you can try to substantiate that assessment better. If I'm right about what I'm saying, but the only nuance is that I find that in the case of Arizona, you have a cap of $169 stores.

Speaker #6: Ohio is going to be $400. I know it's a bigger state. So Ohio may be better on the cultivation side. But on retail, maybe a lot more competitive.

Speaker #6: But maybe more color in terms of how you would compare Ohio and Arizona and why Ohio won't become Arizona in terms of poor economics, at least on the cultivation side.

Speaker #6: Thanks.

Speaker #7: All right. I'll take this first, and then I'm sure Trevor will have some insight into this too that he's thought about. So from my perspective, I think the key is the cultivation side of it from the supply.

Eric Offenberger: All right. I'll take this first, and then I'm sure Trevor will have some insight into this too that he's thought about. From my perspective, I think the key is the cultivation side of it from the supply perspective. The fact that Ohio isn't going to have these large greenhouses because of the climate and that I think it'll keep the supply and the way they've regulated it, and they've done the licensing and stuff along those lines. You won't have that natural rush to excessive cultivation that you have to do. Now, you're correct on the store counts. When you add more stores, just the natural math means each store will do less. I think that really benefits the operator that's disciplined on what the store really is and how you approach the product line.

Speaker #7: So the fact that Ohio isn't going to have these large greenhouses because of the climate and that, I think it'll keep the supply in the way they've regulated it, and they've done the licensing and stuff along those lines.

Speaker #7: You won't have that natural rush to excessive cultivation that you have to do. Now, you're correct on the store counts—when you add more stores, the natural math means each store will do less.

Speaker #7: I think that really benefits the operator that's disciplined on what the store really is and how you approach the product line. So if you don't have an extremely expensive store to operate, you're taking in participating in a market, not trying to set it.

Eric Offenberger: If you don't have an extremely expensive store to operate, you're taking and participating in a market, not trying to set it. I think that's how we've always approached it, saying we're not going to set the market, we're going to participate in the market, and we're going to understand what the market's going to allow and give, and then we'll maximize our operations to support that. We think that's good. We also, Pablo, we've talked about this a lot. We like stores that are rural. We like rural stores. We like underserved markets. We like those types of things. We think it's a good workforce to attract. We think it's a good customer loyalty base to attract. You don't have as much, what I'd consider to be congestion within the area and stuff along those lines.

Speaker #7: And I think that's how we've always approached it, saying we're not going to set the market. We're going to participate in the market, and we're going to understand what the market's going to allow and give.

Speaker #7: And then we'll maximize our operations to support that. So we think that's good. And we also Pablo, we've talked about this a lot. We like stores that are rural.

Speaker #7: We like rural stores. We like underserved markets. We like those types of things. We think it's a good workforce to attract. We think it's a good customer loyalty base to attract.

Speaker #7: And you don't have as much, what I'd consider to be, congestion within the area and stuff along those lines. So, from my perspective, that's why I think Ohio continues to do it.

Eric Offenberger: My perspective, that's why I think Ohio continues to do it. The population, like you said, should support those stores. They can go to 400, but I don't think they've got all those licenses out yet, so they might not reach that level. That's my thoughts. Trevor, I'm sure you have some thought on this too.

Speaker #7: And the population like you said should support those stores. And they can go to 400, but I don't think they've got all those licenses out yet.

Speaker #7: So they might not reach that level. That's my thoughts. Trevor, I'm sure you have some thoughts on this too.

Speaker #5: Good morning, Pablo. So the same thing that's been challenging on getting our retail stores open is the weather. Being too cold to pour concrete and too rainy to draw lines on the concrete.

Trevor Smith: Good morning, Pablo. The same thing that's been challenging on getting our retail stores open is the weather being too cold to pour concrete and too rainy to draw lines on the concrete. The same thing that's going to protect the cultivation investments.

Speaker #5: It's the same thing that's going to protect the cultivation investments.

Speaker #6: Right. Understood. Okay. Got it. And look, the very last question, I mean, obviously, you are Arizona stores, but perform very well. And you're keeping them.

Pablo Zuanic: Right. Understood. Okay, got it. Look, the very last question. I mean, obviously, your Arizona stores perform very well and you're keeping them. I know in the past we've talked about whether you could acquire more stores. Looking closely at the larger chains in Arizona, retail continues to consolidate, right? There are at least, if I'm not wrong, seven or eight operators that have more than five stores, some over 20. Just as we have asked, would you buy more stores? Would you consider at some point selling the two Arizona stores? That would not make sense given the market economics.

Speaker #6: But I know in the past we've talked about whether you could acquire more stores. But looking closely at the larger chains in Arizona, retail continues to consolidate, right?

Speaker #6: And there are at least if I'm not wrong, seven or eight operators that have more than five stores, some over 20. Just as we have asked, would you buy more stores?

Speaker #6: Would you consider at some point selling the two Arizona stores? Or that would not make sense given the market economics.

Speaker #7: Yeah. Obviously, we've taken steps to shore up those stores and recognize what's going on in the Arizona market. So from our perspective, we become a lot more able to adapt and adjust to what the market's going to do in Arizona and allow to do in Arizona.

Eric Offenberger: Yeah, obviously we've taken steps to shore up those stores and recognize what's going on in the Arizona market. From our perspective, we become a lot more able to adapt and adjust what the market's going to do in Arizona and allowed to do in Arizona. With that said, yeah, my obligation is to the shareholders and to the value of the shareholders. If economically it makes more sense to sell those assets, we would look at selling those assets. At the current level, candidly, Pablo, everybody's in an acquisition mode, they're wanting to buy where they're going to come in and take the gain and the step up.

Speaker #7: So with that said, yeah, my obligation is to the shareholders and to the value of the shareholders. So if economically it makes more sense to sell those assets, we would look at selling those assets.

Speaker #7: At the current level, candidly, Pablo, everybody's in an acquisition mode, but they're wanting to buy where they're going to come in and take the gain and the step up.

Speaker #7: From our perspective, as long as those stores are generating a positive EBITDA, positive cash flow, and us taking the moving the cultivation down and doing all that, why should my shareholders not participate in that value up that we would expect to see in Arizona?

Eric Offenberger: From our perspective, as long as those stores are generating a +EBITDA, +cash flow, and us moving the cultivation down and doing all that, why should my shareholders not participate in that value up that we would expect to see in Arizona, versus selling it at a lower value like it's distressed and letting some other company take the gain to their shareholders that we're going to get by taking out the cultivation. From mine and Trevor's perspective, when we look at this, we kind of go, we didn't overdo our cultivation. We had it balanced. We can sell the asset. As Trevor's mentioned before, we don't see a financial loss to the shareholder in selling the asset because of the way we did the structure and everything. We see this as a pretty easy move for us to get it done.

Speaker #7: Versus selling it at a lower value, like it’s distressed, and letting some other company take the gain to their shareholders that we’re going to get by taking out the cultivation.

Speaker #7: So from mine and Trevor's perspective, when we look at this, we kind of go, "We didn't overdo our cultivation. We had it balanced. We can sell the asset." As Trevor's mentioned before, we don't see a financial loss to the shareholder in selling the asset because of the way we did the structure and everything.

Speaker #7: We see this as a pretty easy move for us to get it done. So to sell the asset doesn't make a lot of sense unless somebody's willing to give you a fair value for it that's based upon what we consider we would generate.

Eric Offenberger: To sell the asset doesn't make a lot of sense unless somebody's willing to give you a fair value for it that's based upon what we consider we would generate. That's the thought process, and we'll see that over the next six months. We'll start to see that come to reality.

Speaker #7: So that's the thought process. And we'll see that over the next six months. We'll start to see that come to reality.

Speaker #6: That's good. Thank you. That's all for me. Thank you.

Pablo Zuanic: That's good. Thank you. That's all for me. Thank you.

Speaker #7: Thank you.

Eric Offenberger: Thank you.

Speaker #8: The next question will come from Josh Felker with CB1 Capital. Please go ahead.

Operator: The next question will come from Josh Felker with CB1 Capital. Please go ahead.

Speaker #9: Hey, good morning, Eric. Good morning, Trevor. Congrats on the quota. I know you noted last quarter about 800 to 900 dollars a pound internal costs for your Arizona cultivation, all in after everything.

Josh Felker: Hey, good morning, Eric. Good morning, Trevor. Congrats on the quarter. I know you noted last quarter about $800 to 900 a pound internal costs for your Arizona cultivation, all in after everything. I'm just wondering now that we're a little closer to shedding that asset, could you give us any update on what you're seeing in wholesale pricing in the market today on a per pound basis? Just trying to swap out the model variable.

Speaker #9: I'm just wondering, now that we're a little closer to shedding that asset, could you give us any update on what you're seeing in wholesale pricing in the market today, on a per-pound basis?

Speaker #9: Just trying to swap out the model variable.

Speaker #5: In terms of acquiring product?

Trevor Smith: In terms of acquiring product?

Speaker #9: Yeah. Wholesale previously at $800, $900. Just wondering, are you replacing that on a cost basis?

David Brown: Yeah, wholesale pricing on pounds versus what you were growing previously at $800, $900. Just wondering if you're replacing that with on a cost basis.

[Company Representative] (Vext Science): Yeah, wholesale pricing on pounds versus what you were growing previously at $800, $900. Just wondering if you're replacing that with on a cost basis.

Speaker #5: Yeah, I would say—I hate to use this word—stable pricing around $400 to $500 a pound. But we're not the only operator suffering from the overproduction.

Trevor Smith: Yeah, I would say, I hate to use this word, stable pricing around $400 to $500 a pound. We're not the only operator suffering from the overproduction, and we'll continue to be opportunistic on finding deals sub $400, which are out there. We're currently sourcing and frankly expect to be able to source for the foreseeable future.

Speaker #5: And we'll continue to be opportunistic on finding deals sub 400, which are out there we're currently sourcing. And frankly, expect to be able to source for the foreseeable future.

Speaker #9: Super. Love that. Could you give us an update on the Ohio drive-through spoken to thus far? Particularly interested in Jeffersonville and then Athens update.

Josh Felker: Super. Love that. Could you give us an update on the Ohio drive-throughs spoken to thus far? Particularly interested in Jeffersonville and an Athens update.

Speaker #7: The Jeffersonville, it should be online, I'm guessing, within the week. The security company's in there today finishing the cameras that the state requires for that.

Eric Offenberger: The Jeffersonville, it should be online, I'm guessing within the week. The security company's in there today finishing the cameras that the state requires for that, and once that's completed, we'll open Jeffersonville. Athens, it's funny you ask that because Trevor and I were on with the contractor yesterday and saw the photos, and that's progressing. The window's in, but there's a hill behind it that has to get a new retaining wall. They're finishing that up and, I would think in the next 30, 45 days, that one will be operational also. Very excited about those two to see how they come on. With Fairfield coming on at the same time, we will have, I think it's five of the six with drive-through capability to them, and we really like that model a lot.

Speaker #7: And once that's completed, we'll open Jeffersonville. Athens, it's funny you asked that because Trevor and I were on with the contractor yesterday and saw the photos.

Speaker #7: And that's progressing the windows in. But there's a hill behind it that has to get a new retaining wall, so they're finishing that up.

Speaker #7: And I would think in the next 30, 45 days, that one will be operational also. So very excited about those two, to see how they come on.

Speaker #7: And with Fairfield coming on at the same time, we will have I think it's five of the six with drive-through capability to them. And we really like that model, a lot.

Speaker #9: Yep. Happy to see certain states moving to that model. Definitely an obvious ad at this point. Last question. You noted last quarter significant grants for plant improvement and further expectations of improvements in the Q1.

Josh Felker: Yep. Happy to see certain states moving to that model. Definitely an obvious add at this point. Last question. You noted last quarter significant grants for plant improvements and further expectations of improvement into Q1. I'm just interested if there was a trend into Q1 and how should we be looking at any improvement on a yield basis going forward?

Speaker #9: I'm just interested in if there was a trend in the Q1 and how should we be looking at any improvement on a yield basis going forward?

Speaker #5: Yeah. As we noted, Q1 came in with almost a it was just under 15% improvement in Ohio. Arizona actually also had improvement, but it gets kind of wonky with the shutdown.

Trevor Smith: Yeah, as we noted, Q1 came in with just under 15% improvement in Ohio. Arizona actually also had improvement, it gets kind of wonky with the shutdown. We'll stick to just talking about Ohio. Strong improvement in Q1 as reported. Expecting further strong improvement in Q2 based on the harvests that have completed subsequent to the end of Q1. We're thrilled. Way beyond our expectations and what we had hoped for going into the pilot program and those results and those yields continue to improve.

Speaker #5: So we'll stick to just talking about Ohio. Strong improvement in Q1 as reported. Expecting further strong improvement in Q2 based on the harvest that have completed subsequent to the end of the first quarter.

Speaker #5: We're thrilled—way beyond our expectations and what we had hoped for going into the pilot program. And those results and those yields continue to improve.

Speaker #9: A quick follow-up on that. You noted, I believe, in the last quarter’s commentary that you were expecting a high mid-single-digit improvement in yield quarter over quarter.

Josh Felker: A quick follow-up on that. You noted, I believe, in last quarter's commentary that you were expecting a high mid-single-digit improvement in yield quarter over quarter. Is that Arizona plus Ohio, or did you outperform that single high digit expectation in Ohio with that 15% improvement?

Speaker #9: Is that Arizona plus Ohio, or did you outperform that single high-digit expectation in Ohio with that 50% improvement?

Speaker #5: Outperformed and expect Q2 to further outperform Q1's improvement.

Trevor Smith: Outperformed and expect Q2 to further outperform Q1's improvement.

Speaker #9: Love it. Appreciate the quarter. Really looking forward to the year as those retail doors roll out. Thank you for the questions.

Josh Felker: Got it. Appreciate the quarter. Really looking forward to the year as those retail doors roll out. Thank you for the questions.

Speaker #8: The next question will come from Paul Penney with Partner Capital Group. Please go ahead. Mr. Penney, your line is open.

Operator: The next question will come from Paul Penney with Partner Capital Group. Please go ahead. Mr. Penney, your line is open.

Speaker #10: Oops. Sorry about that, guys. Good morning. I was on mute. Good morning, Eric and Trevor. What is the estimated CapEx spend on the two remaining Ohio stores?

Paul Penney: Oops. Sorry about that, guys. Good morning. I was on mute. Good morning, Eric and Trevor. What is the estimated CapEx spend on the two remaining Ohio stores, and what do you estimate CapEx spend to track to for the fiscal year?

Speaker #10: And what do you estimate CapEx spend to track to for the year, for the fiscal year?

Eric Offenberger: Paul, for the Columbus store, it's probably roughly $3 million, $3.2 million. We'll be able to own that store completely. Obviously you guys know our financing plans and structure that we'll look for a traditional bank financing for that because it's pretty much a traditional asset and cash flow from ops. Our construction relationships, as we've talked about in the past, they work with us on payment and cash flow and stuff like that. That works favorably. We're not really too concerned about that. The eighth store we expect to be somewhere in the $2 million, $2.5 million range, because we don't have to do as much groundwork there on that store, and there's a couple different options on that. Right now, Paul, that still is not finished within permitting.

Speaker #7: So Paul, for the Columbus store, it's probably roughly 3 million, 3 million 2. To but we'll be able to own that store, completely. So obviously, you guys know our financing plans and structure that we'll look for a traditional bank financing for that because it's pretty much a traditional asset.

Speaker #7: And cash flow from us. And our construction relationships, as we've talked about in the past, they work with us on payment and cash flow and stuff like that.

Speaker #7: So that works favorably. We're not really too concerned about that. The eighth store, we expect to be somewhere in the 2 million, 2 million 5 range.

Speaker #7: Because we don't have to do as much groundwork there on that store, and there's a couple of different options on that. Right now, Paul, that still is not finished within permitting.

Speaker #7: So when we say open in '27, we think it opens in early '27, first half of '27. At this point in time. But permitting is a challenge.

Eric Offenberger: When we say open in 2027, we think it opens in early 2027, H1 of 2027 at this point in time. Permitting is a challenge, so we'll see. We might not have a real big cash push on that until late in the year, early next year, and we'll continue to see, as Trevor mentioned, the cultivation improvements and the other stores opening and the cash flow continues from operations. We're not too concerned about that one either.

Speaker #7: So we'll see. So we might not have a real big cash push on that until late in the year, early next year. And we'll continue to see the, as Trevor mentioned, the cultivation improvements and the other stores opening and the cash flow continues from operations.

Speaker #7: So we're not too concerned about that one either.

Speaker #10: Okay. Great. And then your cash flow margin was strong, but on a relative basis, down quarter over quarter and year over year. How do we think about that?

Paul Penney: Okay, great. Your cash flow margin was strong, but on a relative basis, down quarter over quarter and year over year. How do we think about that?

Speaker #5: We took care of some outstanding accounts payable. Frankly, it was adjacent to our construction partner out there. So there's just some quirks with regards to prior accounts payable on acquisition that came in as AP.

Trevor Smith: We took care of some outstanding accounts payable. Frankly, it was adjacent to our construction partner out there. There's just some quirks with regards to prior accounts payable on acquisition that came in as AP. It's going to be a drag on operating cash. That's going to get retired this quarter in Q2. You'll have some Arizona shutdown drag, just kind of cleaning up all that, which I think as we've noted, will start to improve in the back half of Q2 and then see full improvement by Q3 to where we're comfortable we're going to outperform last year's operating cash flow.

Speaker #5: So, it's going to be a drag on operating cash. That's going to get retired this quarter, in Q2. And you'll have some Arizona shutdown drag, just kind of cleaning up all of that, which I think, as we've noted, will start to improve in the back half of Q2.

Speaker #5: And then see full improvement by Q3 to where we're comfortable we're going to outperform last year's operating cash flow.

Speaker #10: Great. Perfect. And then, last question. When you look out six months to a year in Arizona, how do you expect margins and free cash flow to track without Eloy?

Paul Penney: Great. Perfect. Last question, when you look out six months to a year in Arizona, how do you expect margins and free cash flow to track without Eloy?

Speaker #5: Margin—I think margin on a relative basis should improve, although that's not really our primary focus. We're happy to do twice as much volume in exchange for 10 points of margin.

Trevor Smith: I think margin on a relative basis should improve, although that's not really our primary focus. We're happy to do twice as much volume in exchange for 10 points of margin.

Speaker #5: So for us, it's all turn, turn, turn. And as part of that turn, turn, turn, particularly with third-party sourcing and standard net 30, we're expecting a meaningful improvement, both in adjusted EBITDA and in cash from operations from Arizona.

Trevor Smith: For us, it's all turn. As part of that turn, particularly with third-party sourcing and standard net 30, we're expecting a meaningful improvement, both in adjusted EBITDA and in cash from operations from Arizona.

Speaker #10: Great. Thanks. That's a great quarter.

Paul Penney: Great. Thanks, guys. Great quarter.

Speaker #7: Thank you.

[Company Representative] (Vext Science): Thank you.

Speaker #8: This concludes the question and answer session. End today's conference call. You may disconnect your lines. Thank you for your participation and have a pleasant day.

Operator: This concludes the question and answer session and today's conference call. You may disconnect your lines. Thank you for your participation and have a pleasant day.