Operator: Good day and welcome to Cresco Labs' Q3 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then one on your touch-tone phone. To withdraw your question, please press the star key, then one again. Please note, this event is being recorded. I would now like to turn the call over to TJ Cole, Senior Vice President, Corporate Development and Investor Relations for Cresco Labs. Please go ahead.
TJ Cole: Thank you. Good morning and welcome to Cresco Labs' Q3 2026 earnings conference call. On the call today, we have Chief Executive Officer and Co-Founder, Charles Bachtell, Interim Chief Financial Officer, Mark Stortz, and President, Greg Butler, who will be available for the Q&A. Prior to this call, we issued our Q3 earnings press release, which has been filed on SEDAR and is available on our investor relations website. These preliminary results for the Q3 are provided prior to completion of all internal and external reviews, and therefore are subject to adjustment until the filing of the company's quarterly financial statements. We filed our corresponding financial statements and MD&A for the quarter ended 30 September 2026, on SEDAR and EDGAR earlier this morning. Before we begin, I want to remind you that statements made on today's call may contain forward-looking information. Actual results may differ materially.
TJ Cole: The risks, uncertainties, and other factors that could influence actual results are described in our earnings press release and in the most recent annual information form and MD&A filed with the securities regulators. This call also contains non-GAAP measures, also outlined in our earnings press release and in the MD&A filed with the securities regulators. Please also note that all financial information on today's call is presented in US dollars, and all interim financial information is unaudited. With that, I'll turn the call over to Charlie.
Charles Bachtell: Good morning, everyone, and thank you for joining Cresco Labs' Q3 2026 earnings call. The quarter delivered as planned. We expected Q3 to look a lot like Q2 on revenue while we worked through higher-cost inventory, integrated new stores, and brought Kentucky online. We generated $173 million in revenue, up 5% year-over-year. We produced $81 million in adjusted gross profit. We produced $35 million in adjusted EBITDA, resulting in a 20% margin, and we generated $26 million in operating cash flow, up from $15 million in Q2, and $21 million in free cash flow. Cash is our North Star, and this quarter, the business converted over 60% of adjusted EBITDA into free cash flow.
Charles Bachtell: The Cresco team executed this quarter as we closed on an acquisition, improved cultivation, and ramped up a new state, all while keeping the base business running at a high level. I will now walk you through the quarter by touching on three themes. First, executing on our growth plan. Second, winning where we operate. Third, building the company for its next chapter. First, our growth plan. We remain disciplined and consistent in our growth strategy. Where we lead, we go deeper. Where we see structural advantages, we find compelling inroads. Every opportunity is evaluated on the same thresholds. It must have accretive economics and be in a market with a durable structure. on 2 September, we closed the acquisition of the nine Pennsylvania dispensaries, a state where our scaled position gives us operating leverage.
Charles Bachtell: While the state approval process took longer than anticipated, we can now fully implement our operating model from top to bottom. In Q4, we are putting the playbook into effect and working toward moving the stores under the Sunnyside banner. With 27 locations alongside the number one brand in share, we operate the largest retail network in Pennsylvania, the second-largest medical market in the country. In Ohio, we captured a full quarter of contribution from our completed eight-store retail network, and we have also done important work to upgrade our cultivation. In H1, we transitioned our greenhouses to allow full environmental control and under-canopy lighting, and we made similar improvements in Massachusetts. These are great examples of how we invest: targeted, capital-light, and a high level of execution certainty.
Charles Bachtell: While this construction had an impact on cultivation in H1 of the year, resulting in less sellable material and higher-cost products that we are selling through in H2 2026, the harvests coming out of Ohio and Massachusetts today have materially higher yields, and that additional supply will let us expand product sizes and categories in 2027. We are also encouraged by Ohio's enforcement of intoxicating hemp rules, which can serve as a successful case study for other states. The entire market is up over 30% year-over-year, and consumers are embracing safer products that are lab-tested, accurately labeled, and sold through the regulated retail channel. In Kentucky, we completed our first full quarter of commercial sales. The market is developing broadly in line with the ramp-up we expected, and subsequent to quarter end, we opened our first Sunnyside dispensary in the state on 23 October.
Charles Bachtell: New medical programs take time to build, and Kentucky's contribution in the near term will be modest. This is a multi-year opportunity, and we are pacing our investment to market growth. Second, we win where we operate. For Cresco, winning means managing competitive and pricing pressure while running the most productive retail in our markets, getting more out of every square foot of cultivation, and building brands that consumers revisit again and again. Looking at retail productivity, Sunnyside dispensaries generate nearly 30% more revenue per store than state averages. In Illinois, Ohio, and Pennsylvania, that productivity translates into a top 2 retail share position in each of these core states. Our House of Brands products achieve in wholesale what Sunnyside does in retail. They bring repeat consumers back. In Pennsylvania, we expanded our number 1 branded product market share lead.
Charles Bachtell: In Illinois, we lead the state in flower, edibles, and concentrates market share. While we have lost share in vape, this is by design. The category's growth is driven by larger formats sold at the same price, pushing price per gram down by more than a third in 2 years. We are not chasing that trend. Our vape portfolio commands the highest price per gram of any major producer in the state. In Massachusetts, we lead in market share, led by our branded flower share. Winning where we operate also means innovating where we operate. We are thrilled to be introducing two exciting innovations that give consumers an approachable way to choose cannabis for more occasions. Last month, we launched SLIPS, an oral pouch under the High Supply brand that landed on Sunnyside shelves in Illinois in 4 and 10 milligram formats.
Charles Bachtell: Consumers are already enthusiastic about the unique, convenient format that allows for discreet, fast-acting consumption. This week, our Wonder brand introduced 5 milligram single-serving beverage mixes, designed for occasions like exercising, sleeping, or socializing. Learning from the hemp beverage boom and leaning into the wellness beverage trend, each mix also includes ingredients such as creatine and caffeine for the exercise formulation and chamomile and melatonin for the sleep formulation. Both products align with a broader shift in consumer behavior towards products that are portable, low profile, and easy to incorporate into everyday routines. We are initially launching in our own Illinois stores because our retail and loyalty data lets us measure repeat purchases precisely. It is a test-and-learn approach, and we will scale using that data.
Charles Bachtell: Cannabis is still poised to be one of the largest consumer goods categories in the country, which is why Cresco continues applying our CPG playbook to understand unmet consumer needs and occasions, develop products that meet those needs, and build trusted brands that provide meaningful choices. I couldn't be prouder of this team as they continue expanding traditional cannabis forms to reach new consumers in wellness categories. Third, we are building the company for its next chapter. Last quarter, we said that we were executing on everything within our control so that when federal regulations allow, we will be ready to capitalize on the next phase of regulated cannabis. Last week at our annual general and special meeting, shareholders approved three special resolutions, each with over 94% of votes cast in favor. Each of the resolutions are structural steps that together do three things.
Charles Bachtell: They simplify our corporate structure, they align the company with the US investor base that will increasingly own this industry as it normalizes, and they put the pieces in place to prepare for uplisting on a senior US exchange. This means we are ready for Cresco's next phase as we watch federal reform continue to unfold. The federal backdrop continues to move in our direction. Earlier this week, our medical operations began receiving DEA registrations under Schedule III. The administrative process on broader rescheduling continues to progress. In December, federal restrictions on intoxicating hemp are set to take effect, which, as we have seen in Ohio, supports the health of both consumers and this industry. That said, we don't build our plan around federal reform timelines. As always, we plan for the business we have today so that we are well-positioned regardless of future reform outcomes.
Charles Bachtell: Before I hand it over, I want to welcome Mark Stortz, who is serving as our interim Chief Financial Officer. With that, I will let Mark walk you through our Q3 financial performance in more detail.
Mark Stortz: Thank you, Charlie, and good morning, everyone. As we outlined last quarter, we expected Q3 revenue to be roughly in line with Q2, gross margin in the high 40s as we worked through higher-cost inventory, adjusted SG&A essentially flat in dollar terms, and adjusted EBITDA margin of approximately 20%. Against that framework, the quarter was in line with our expectations. Our growth initiatives helped offset supply constraints caused by construction in several markets this quarter, a full quarter of our newest Ohio stores, the start of Kentucky sales, and a one-time step-up in Illinois basket sizes following the increase in purchase limits. As a result, we reported $173 million in revenue, up 5% year over year and roughly flat sequentially. Retail revenue was $121 million, and net wholesale revenue was $52 million, both flat sequentially.
Mark Stortz: On margin, cost of goods sold was up as we worked through the higher-cost inventory tied to the facility upgrades completed in H1, as we said we would. Together, that resulted in adjusted gross profit of $81 million, or 47% of revenue. We were able to absorb a full quarter of Kentucky operations in our newest Ohio stores while reducing adjusted SG&A by $1 million, as productivity gains across the base business and corporate functions, including our continued deployment of AI and automation, offset growth-related costs. Adjusted SG&A was $54 million, or 31% of revenue, compared to $55 million and 32% of revenue in Q2. Holding gross margin within our range while decreasing SG&A produced adjusted EBITDA of $35 million, or 20% of revenue. Turning to cash flow, the business generated $26 million in operating cash flow in the quarter.
Mark Stortz: We invested $5 million in capital expenditures, primarily cultivation upgrades in Ohio and Massachusetts and our Kentucky dispensary, resulting in free cash flow of $21 million, ending the quarter with $76 million in cash and restricted cash. Looking ahead to Q4, we expect net revenue to be down low single digits sequentially, reflecting typical seasonality in wholesale and continued pricing pressure in our more competitive markets. We expect gross margin similar to this quarter as the majority of the higher-cost inventory from the construction period sells through. Adjusted SG&A should be up modestly in dollar terms as we rebrand acquired Pennsylvania dispensaries and open our new dispensary in Kentucky. With that, I will turn it back to Charlie for closing remarks.
Charles Bachtell: Thank you, Mark. Let me close by pulling the quarter together. In Q3, we delivered on what we said we would deliver. We closed Pennsylvania and took full ownership of nine stores. We completed the Ohio retail build-out while upgrading our cultivation and brought Kentucky online. In Illinois, we are answering a more consolidated market with brand strength, retail productivity, and new formats. Importantly, our shareholders just approved the critical steps required to put the company's structure where it needs to be for this next phase of cannabis. In the near term, we are prioritizing cash flow, with our mission for 2027 to find scale and efficiencies across our core. We are up for the challenge. We are looking at every corner of the organization to identify untapped opportunities to make us more productive and more profitable, incorporating AI and other transformative tech solutions to maximize those efficiencies.
Charles Bachtell: We are working hard to provide our shareholders with multiple pathways to win. The first is through the business itself, a disciplined team, a tightly executed growth plan, and a cost structure that converts that growth into cash. The second is the environment around the business. Federal reform that strengthens cash flow and balance sheets across the industry, and access to the capital and investors that have been closed to this sector since the beginning. Plus, an electorate that continues reaffirming public support for regulated cannabis, as seen in this week's election results throughout the country. The first pathway stands on its own, and the work we completed this quarter means that Cresco will be ready to act quickly when the second pathway arrives. Thank you to the entire Cresco team for your execution this quarter, and to our shareholders for your continued support.
Charles Bachtell: With that, we will open the call for questions.
Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Aaron Grey with Alliance Global Partners. Your line is open. Please go ahead.
Aaron Grey: Hi, good morning, and thank you very much for the questions here. First off, just wanted to touch more on the gross margin. It came in at the low end of the guide you had offered last quarter. I understand some of the reasons for that and higher cost inventory. It looks like it is going to be flat in Q4. Just want to get a better sense in terms of early indicator for 2027 and how we should think about gross margin expansion opportunities and potentially getting back to more of the 50% level. Thank you.
Charles Bachtell: Yeah, good morning, Aaron. As you called it, and as we mentioned on the last call, in Q3 and Q4, through the rest of the year, we are going to be selling through some of this higher costed inventory in some of the markets where we had made capital improvements that impacted productivity, and therefore we had this higher costed inventory, again, that we will be selling through the rest of the year and a little bit into Q1. We do expect to see, of course, recovery when we get back to now the normal costed items, and really the opportunity for improvement there based on those improvements that we made. The initial results, the harvests that are coming out of those facilities now are showing the benefit of the investment.
Charles Bachtell: And look, at Cresco, we are just going to continue to do what we need to do to make sure that we are equipped, positioned, structured to be as competitive as we need to be in the quarters ahead. Just like we always have, we will continue to focus on that.
Aaron Grey: Okay, great. Thanks for that, Charlie. Talking about some of the innovation, maybe more so on the drink side or drink mixes. We talked about in the past, you guys did not get into the hemp THC drinks category. You guys had been evaluating. How much of an opportunity do you now see given that that market could go away or is looking to go away next month, and how much was that a driver in terms of your own launch now? Do you believe there is a lot of opportunity to bring those consumers into your dispensaries? How big do you think it could become? Just more color in terms of what went into that decision and why now. Thanks.
Charles Bachtell: Yeah, for us, and we have talked about it, the benefit, it is the duality of the hemp experience over the last couple years, right? The benefit of it is the introduction to a lot of consumers to not only formats, but accessibility of THC-based products that we have seen the demand for. We have seen the interest from the consumer end. So the idea that as the availability of hemp-derived THC products will be going away, we recognize that as a consumer that we want to appeal to, that we want to make sure that we have product offerings for, and that we can bring them into the regulated channel to satisfy that need. Hence, innovation follows. We always had also, I would say, R&D approach where we would be prepared for whatever the outcome is there.
Charles Bachtell: What you are seeing is us move forward with the version of that product that we think is best suited for the regulated market. Again, we look forward to welcoming that consumer in, and Greg, you want to add more color?
Greg Butler: Sure. Good morning, Aaron. I think we are, as you said, encouraged by the opportunity that is coming, but I think one of the things we are not totally going to do is build a plan around it right now. As we look at it, I think enforcement is going to be a big piece. Look at Ohio, when enforcement is done right, you can see material growth in the market, but we have to see how that rolls out across Illinois as we get to that date. Second part is looking at demand shifts. I think some of this, as Charlie said, will come back to dispensaries, but I also think a portion of that hemp volume will either return back to alcohol occasions. It might just be an occasion that goes away because the product and price does not exist in the non-hemp space.
Greg Butler: Some of it will turn to the illicit market, and some of it will go into dispensaries. We are watching that. I think as you look at the innovation we have launched, we are really encouraged by these two new platforms. We have a variation of both as a hemp and a non-hemp option. I would not say necessarily we think, for example, Wonder Beverage Mix is a perfect substitute for the hemp ready-to-drink cocktail, but we do think innovation serves us two points. One is, do we have the right lower dose offerings in our stores that those consumers are used to? Then also, as we think of innovation, it actually goes back to more your first question, which is how do we continue to build innovation that helps grow consumption and consumption opportunities at higher margins?
Greg Butler: And both the High Supply SLIPS and the Wonder Drink Mix does that for us.
Aaron Grey: Really appreciate that color, both Charlie and Greg. I will jump back in the queue.
Charles Bachtell: Thanks, Aaron.
Operator: Your next question comes from the line of Neal Gilmer with Haywood Securities. Your line is open. Please go ahead.
Neal Gilmer: Yeah. Thanks very much. Good morning. On the acquisition of the stores in Pennsylvania, I know you said closed at the beginning of September. Just wondering how that integration is going and what you expect the timeline to get them operating like your framework for the Sunnyside shops?
Charles Bachtell: Yeah. Thanks, Neal. So it was great to get the official closing across the finish line there in September. So we are now entering that phase of full integration. While we operated those stores under an MSA for months, once you have full ownership, then you really get into full adoption of the operating model. That will, of course, play itself through this quarter and in the beginning of next year. But once we get loyalty up, and really once we start to drive our traditional assortment on those shelves, that is when we will see those stores act and feel more like Sunnyside stores do across the footprint.
Neal Gilmer: Great. Thank you. And then maybe you touch on, in the past you have talked, you are dabbling on the international side of the market, what your current thinking is or approach and strategy for international?
Charles Bachtell: Yeah, it is a good question. It is still in that observe, test, and learn phase. What we are seeing develop over there is relatively akin to what we have seen develop here in the US on a state-by-state basis, where there is the shifts that come from growth phase to pricing pressures. Some of those markets over there right now are experiencing an oversupplied position. And so I think it validates our approach to take a light touch and to see how those markets do evolve and what parts of the supply chain are most durable and that you want to invest in. We know that the international markets are viable for the future and that participation makes a ton of sense. But making sure that you get it right based on the lessons that you have learned in a decade-plus in US cannabis is the approach that we are going to take.
Neal Gilmer: Okay, great. Thank you very much.
Operator: Your next question comes from the line of Kenrick Tai with Canaccord Genuity Capital Markets. Your line is open. Please go ahead.
Kenrick Tai: Thank you, and good morning. Just with respect to the enforcement action and state-level enforcement, in your response to the earlier question on Illinois, there sounded to be a real degree of caution as to see how it will evolve. Part two to the question would be, if Illinois goes as hard as Ohio did on enforcement, what could that look like both for the state and for your operations in the state, given how material Illinois is?
Charles Bachtell: I might take it in reverse. I think the level of enforcement in Illinois definitely has the potential to have a strong impact on the regulated channel in the state. I would say our apprehension is just more around the conversion of the hemp consumer into the regulated market more than whether or not there will be enforcement in Illinois and Ohio or both states that recently passed laws that allow them to wrap their arms around this issue independent of what happens at the federal level. We know that there is conviction from the Illinois administration to see this through. There was recently just a letter or directive that was sent by the Illinois state administration to the federal government of making sure that they knew where Illinois stood on keeping the loophole closed at a federal level. So we are encouraged on the approach that Illinois will take.
Charles Bachtell: I think what you are hearing from us is, like we talked about on the last call too, I think, is how much of that demand, that hemp demand, can you convert into the regulated market?
Kenrick Tai: Right. Thanks, Charlie. That is some good insight. Just on Kentucky, perhaps help us understand what some of those key hurdles are that will sort of gate or limit the acceleration of growth in that market, outside of the obvious of it is a new market. Are there any other things specific or unique to the program, the program rules, that are going to result in a slower cadence of growth or rather a very considered growth cadence in the early days here?
Charles Bachtell: No, it is a valid question. Kentucky is one of the first new medical programs to launch in a while. So I think it is us remembering back to what it was like when states like Illinois launched their medical program, and it takes time for patient adoption to ramp up. So to your question, other than the standard it is a new medical market components, I would add in there that the structure of Kentucky, it is fairly limited retail licenses. I want to say it is 48 off the top of my head. You are seeing some affiliated stores. A good number of these stores that have opened so far are affiliated directly with some producers, and so there is a preference for that verticality type assortment in those stores.
Charles Bachtell: It is not only the new medical program adoption path, but structurally, Kentucky, we need to see broader store opening, and we need to see broader patient adoption through the state, and that is when you will see that market really accelerate. But in fairness, that is something that plays out through 2027 and into 2028.
Kenrick Tai: That's great. Thanks, Charlie. I'll get back in queue.
Charles Bachtell: Thanks, Kenrick.
Operator: Your next question comes from the line of Bill Kirk with Roth Capital Partners. Your line is open. Please go ahead.
Bill Kirk: Hey. Good morning, everybody. I don't think Texas was mentioned in the opening remarks, so is there any update on the dispute there over the conditional license? I guess, what is the appeal status, and when would you expect to know more?
Charles Bachtell: Sure. There is a pending litigation there related to the conditional license that we were awarded and then had taken away. I think this is probably the great opportunity to touch on what happened across the country with the elections just the other day. Texas has a very different look and feel to it today than it did 3 days ago. How that is going to impact THC in that state overall is to be determined. You definitely have more pro-cannabis views that are in all of the related components and positions within that state of Texas. Even on a broader level, you saw that happen across the country. You have states like what happened in Pennsylvania. We are incredibly excited about the results in Pennsylvania and what that can mean for adult use in one of our most meaningful markets in the near term.
Charles Bachtell: States like Wisconsin and North Carolina and even Ohio, as we look at the Ohio market, you have a new governor that is going to be taking the seat there at the beginning of the year that is replacing a governor that did not like cannabis. Everything that we have seen in Ohio play out in the last couple of years was done with a governor who reluctantly was allowing that program to proceed. Overall, very encouraged by the results from the elections, and that applies to the opportunity in Texas. I think you are going to see a more appropriate level of interest in making sure that that medical program there is viable and that residents of Texas have access to THC-based products.
Bill Kirk: Thank you, Charlie. I do want to go back to gross margin. Just given the magnitude of the contraction year-over-year, quarter-over-quarter, it surprised us. I have to ask if there is any maybe new promotional or pricing actions within the gross margin pressure, or if it is purely just that higher cost of inventory.
Charles Bachtell: It is multi-components, but main driver of it is that high-cost inventory that we are selling through. Also, especially as we get into Q4 of the year, which is usually high promotional activity and seasonality, you are going to see that develop also. Greg, any additional color you want to add?
Greg Butler: Before hitting the market with the cost side inventory, I think if you look at price perspective, you are seeing a consumer trend in the marketplace of value sizes in major markets as both consumers are seeking it out. You have more operators offering that in assortment. We have been limiting how much of value sizing we put in. That is why you are seeing some of the top-line decisions we have made to ensure that we are not chasing value pricing down. We also have to follow suit on the growth of larger sizes. You are seeing some pricing activity to remain competitive, not as aggressive as we could be taking to chase overall share, but nothing that is just a price action that is driven by us. Mark will talk a little bit about kind of the inventory we saw.
Mark Stortz: Yeah. Thanks, Greg. I think, just to add to that, what is interesting and what we have talked about before on this call as well is some of the facility upgrades that we have been making, particularly in Ohio and Massachusetts. While we are seeing the impact of the higher costed product flow through our P&L this quarter, and we expect that to continue a little bit going forward in the next quarter as well, we are excited about the opportunity of those investments to reduce our cost to produce and eventually flow through our gross margin profile. We do expect, as those things complete and mature, that we will see some good benefit there in the future. I think that is an exciting component as well as we think through managing our inventory mix on a go-forward basis.
Bill Kirk: Thank you. Those are some useful details there. I appreciate it.
Charles Bachtell: Thank you.
Operator: Your next question comes from the line of Frederico Gomes with ATB Cormark Capital Markets. Your line is open. Please go ahead.
Frederico Gomes: Yeah. Good morning. Thanks for taking my questions here. I want to ask about Pennsylvania. Given the, I guess, the potential there for adult use legalization following the election, how are you positioned in terms of capacity in the state, cultivation, manufacturing? What sort of investments do you think would be needed if that actually happens next year? Thank you.
Charles Bachtell: Yeah, thanks, Fred. Yeah, very excited about the results in Pennsylvania. You now have a governor who has put cannabis adult use in his budget for the last 3 years, I think. You've had a House that's supportive of it, and now you have a Democratic-controlled Senate. So, we think that the opportunity for adult use there is better today, meaningfully, than it was pre-election. You've seen us position ourselves there over the last year to prepare ourselves not only for the market that it is today, which we like, which, of course, we have a really strong leader position on both sides, from a retail and a production wholesale side, but also for that potential for adult use. It's the second-largest medical market in the country, and it still has legs to grow under an adult-use scenario. Keep in mind, Pennsylvania is surrounded by adult use already.
Charles Bachtell: To sort of bring that business back into the state, it's going to have a meaningful impact. From a production or capacity standpoint, we have our second facility there that still has an opportunity for investment to increase capacity, and there's other opportunities that we'll evaluate too. As you've seen us be very judicious and very disciplined in capital allocation over the last few years, this is new information that we're going to now start to evaluate and see what happens in the next couple of months as the legislature comes back into session. You'll see us continue to evolve in the way that we're approaching our leadership position in PA for today and for the next phase of it.
Frederico Gomes: Thank you. A second question on your wholesale segment, on a net basis here, with sales declining. Can you talk about the outlook for wholesale? How much of this is you deliberately shifting product into your own stores? How much of it is just the pricing pressure or competitive pressures selling to a third-party source?
Charles Bachtell: Craig, you want to start this one?
Greg Butler: Sure. Overall, from our wholesale portfolio perspective, our wholesale brands remain incredibly strong. If you look at distribution and velocities, we are in every account we want to be in our major core states, and our brands continue to be performing at some of the top velocities in the state. There are a couple things that we are looking at our wholesale business as we go forward, and one I touched on just a couple of minutes ago, which is, as we look at the market shift to larger value sizes, there is a way for us to play there that drives top line, that can come at the expense of margin. There is a way for us to play there that forgoes some top line in pursuit of maximizing margin and cash.
Greg Butler: We are managing the mix of how much we are putting into the market to maximize the margin on our business. There are a couple of shifts that are also happening this quarter as we look at the next quarter in some of our core markets. If you look at Illinois, some of the retail doors that we tend to be very strong with independents have now changed ownership. When a store changes ownership, that does change some of the potential of that door, and so you are going to feel that in-quarter as a shift that we have to then figure out where we are making around. But it also relies on us looking at innovation, like we just launched with High Supply SLIPS, which is making sure that we also have items that are the got-to-have items across the state that also carry an improved margin on them.
Greg Butler: I think if you look at Q3, a little bit of this is due to where the volume is shifting to value sizes. It is also what is happening with how the retail landscape is playing out, but that is what we are going to be managing through as we get into next year.
Frederico Gomes: Great. Thank you.
Operator: Your next question comes from the line of Pablo Zuanic with Zuanic & Associates. Your line is open. Please go ahead.
Pablo Zuanic: Thank you, and good morning, everyone. Charlie, can I go back to the Texas question? Given your litigation, I just want to confirm that given your litigation, there has been a stay, an injunction put in the program, so the regulator cannot go ahead with the program. Am I interpreting that right, or that is not true?
Charles Bachtell: No, I don't think that we've had any decisions in the three litigations that are pending there that have stayed the program. I think that stay that was for the timing of moving forward or issuing the unconditional licenses is independent from anything that's happened in our cases so far.
Pablo Zuanic: Thank you. Just talking, I guess, about competitors, two-part question. In the case of Florida, we're seeing quite a few of your competitors expanding in that market, right. I guess the numbers are looking better. I mean, how is Cresco thinking about that market. Then similar question regarding Illinois. I mean, you saw Green Thumb get to 26 stores with their deal. Obviously, you expanded through acquisitions also in Pennsylvania. But in the case of Illinois for the Sunnyside banner, do you think that you have to ramp up the number of stores or make acquisitions to get to that 20-plus number there. Thank you.
Charles Bachtell: We'll take those in order. Yeah, the Florida expansion or Florida, some of our peers set, seeing growth in the state. You have to remember some of the peers down there were preparing for adult use back in 2024. When that did not happen, they've had extra capacity that's sitting there for us. We've always needed to manage that Florida positioning to make sure that we weren't overbuilt. But also not unprepared for something that's going to happen down there. I think Florida's a state that you'll see us continue to evaluate for further investment. We think it's a strong state. Again, another state that had an outcome on the election night that could be seen or should be seen as pro-cannabis. Again, Florida's a great state, and you'll continue to see us evaluate that for further investment.
Charles Bachtell: As it relates to Illinois, sure, it's our largest market. We're the largest operator in the space. We're constantly evaluating opportunities for us to grow our impact on the market, and whether it's with affiliated stores or otherwise, you'll continue to see us lean in to Illinois to make sure that it continues to be one of the strongest components of the business.
Pablo Zuanic: Thank you. Just one more, if I may. Obviously, you and your team have been very close to the Pennsylvania regulatory side of things and how things have evolved there. I know we all made the assumption that because Democrats now control both chambers, that is great news for legalization of rec, and of course, I agree with that. But I would argue that in the past, the holdup was not so much Republicans in the Senate, but it was Democrats within Pennsylvania, the two chambers, not being able to agree on a final program. Do you want to give some thoughts on that, and should we keep that in mind as we try to temper our excitement on Pennsylvania? Thanks.
Charles Bachtell: Well, I think there is a healthy dose of caution that we always have to apply to anything that requires legislative change or regulatory overhauls or administrative action at a federal level. It is lessons learned by all of us that have been in cannabis for a sufficient period of time. But what I do know about Pennsylvania is the likelihood of a real balanced, responsible approach to adult use moving forward became better after the election results. There is, of course, again, the inherent risk of the unknown and of legislative action, but Pennsylvania has been close for years, and the sort of the format of, or the dynamics that existed between the House and the Senate was always the crux of adult use moving forward, and we do think that that has improved in the last 3 days.
Pablo Zuanic: Thank you.
Operator: There are no further questions at this time. I will now turn the call back to Charlie Bachtell for closing remarks.
Charles Bachtell: Yeah, I want to thank everybody for joining us today. This is the last call that we're going to have this year. Hope everybody has wonderful holidays, and we'll talk to you in 2027. Thank you.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.
