Operator: Thanks, operator. Good morning, everybody, and thank you for joining us today. VEXT's Q3 2026 financial results were released earlier today. 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+, and we encourage listeners to read those risk factors in conjunction with today's call.
Operator: 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 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's financial statements are presented in USD, and the results discussed during this call are in USD. I will now pass the call on to Eric Offenberger, Chief Executive Officer of VEXT.
Eric Offenberger: Thanks, Priyam. Good morning, everybody, and thank you for joining our Q3 2026 financial results conference call. I am joined today by Trevor Smith, VEXT CFO. Q3 was our highest revenue quarter of the last eight. Revenue was $14.9 million, up 18% from a year ago and 23% from the second quarter, with Ohio up 37% to $10.9 million. Most importantly, the business continued to generate cash. Operating cash flow doubled from the second quarter to $2.4 million, as the inventory we built in the H1 turned into cash. Margin was lower this quarter, and I want to address that directly. Adjusted EBITDA was $0.2 million compared to $3.4 million in the second quarter. In the H1, we built inventory in Ohio, and in the Q3, we sold it through. At the same time, our output was lower.
Eric Offenberger: Cultivation yields came in below the second quarter, and with Vapen product on hold, we naturally made less of that line. So the cost of the H1 production came through cost of goods sold this quarter against slower output. Trevor will walk you through the detail. A couple of other things weighed on the quarter. At the request of the Ohio Division of Cannabis Control, our Jackson dispensary was closed from 1 September to 17 September. We voluntarily quarantined Vapen-branded products from 1 September, and the division placed them on administrative hold on 2 September. On 14 October, the DCC released the hold, and the products are back in our stores and with our wholesale customers. Cultivation yields for the quarter were down 2% after a climate control failure in one flowering room in July, as well as lower yields from strains harvested for the first time.
Eric Offenberger: We have strengthened preventative maintenance on that equipment and enhanced monitoring systems. Through all of it, we stayed focused on what we can control using the same framework I walked you through last quarter: own, operate, allocate. This quarter, all three were at work. Let us start with what we own. In August, we bought the Jackson, Ohio cultivation and manufacturing property, the facility that stocks our Ohio shelves and replaced a lease with ownership. We have never done a sale leaseback, and here we went the other way. We funded it with a fixed rate financing, which locks in what the capital costs for us for the next five years. Turning to operations, Ohio carried the quarter. Fairfield had its first full quarter and drove most of the sequential growth in Ohio retail assets and is still building its customer base. September was its best month yet at more than 9,000 transactions.
Eric Offenberger: The flower we grew in Jackson found buyers well beyond our own stores. Total wholesale revenue was $2.8 million against a H1 average of $1.6 million a quarter, with about $2.4 million of that in Ohio. During the Vapen hold, we had to buy more third-party product. About half of what we sold in our Ohio stores this quarter was products we did not make. With the hold lifted, our stores are rebalancing toward the products we make. We are in the process of upgrading the pre-roll equipment and introduced Prism, our THC pouch, to Ohio. The seventh Ohio dispensary in Columbus is under construction and is on track to open in the H1 of 2027. Last week, we received a provisional license for our eighth location in Amelia, east of Cincinnati, which we expect to open by the H2 of 2027.
Eric Offenberger: This gets us to 8, which is the maximum allowed under current Ohio regulations. Arizona is where the repositioning is starting to show. Last quarter, I told you we had stopped growing flower because we can buy it in the Arizona wholesale market for less than it costs us to grow. That sourcing advantage let us lower shelf prices, and Arizona dispensary sales rose 7.6% from the Q2, the first increase after five quarterly declines. In July, the latest month the state has published, sales per store were 1.12 times the state average, up from 0.9 times in the Q2. That is the model working the way we designed it. Source and price to the market, focus on merchandising, and the customer will shop our location, which brings me to allocate.
Eric Offenberger: With cultivation shut down and the Eloy facility for sale, the manufacturing facility in Arizona no longer brings value to our footprint. In October, we finalized a plan to sell the Phoenix manufacturing facility, and we are scaling that operation back to packaging for our own stores. Decisions to close assets are not taken lightly, but as we have said, we will make the decisions necessary to deploy capital where we have the best opportunity. Right now, that is Ohio. We are a month into the Q4 with the pieces in place. We own the facility that supplies our Ohio stores, and our Arizona cultivation inventory has been sold through. With the Jackson dispensary reopened and the administrative hold released, our focus in Ohio is on rebalancing the shelf toward the products we make and on the retail margin that comes with that mix.
Eric Offenberger: Some of what we worked through in the Q3 is carrying into the Q4 as we return to normal operations from the administrative hold and the store closing, and as we scale back Phoenix and market the facility for sale. But the direction is set. More of our own product on our Ohio shelves, our seventh Ohio store opening in the H1 2027, and the eighth to follow, and growth funded primarily by the cash this business generates. Our priorities have not changed. Grow Ohio, finish repositioning Arizona, and strengthen the balance sheet. In Ohio, that means inventory mix and margin. In Arizona, it means building on the Q3's turn in dispensary sales, completing the sale of the Eloy and Phoenix properties, and taking the debt and carrying cost of those facilities off the books.
Eric Offenberger: I will close by saying the team at VEXT meets every challenge put in front of it, and it is a privilege to be part of it. I will turn it over to Trevor for a closer look at the financials. Trevor?
Trevor Smith: Thanks, Eric, and good morning, everyone. Overall, Q3 reflected the sell-through of the inventory we built in H1. Revenue grew strongly, and operating cash flow doubled, while margins came down as those H1 production costs moved through cost of goods sold. Let me walk you through the pieces. Revenue came in at $14.9 million, up 23% from Q2 and up 18% from a year ago. Ohio drove the growth, up 37% to $10.9 million on Fairfield's first full quarter and wholesale sales of our own flower. Arizona was $4.0 million, down 15% from a year ago following the cultivation exit and a softer Arizona market, but up 13.5% from Q2. Gross profit was $3.0 million. Gross profit before fair value adjustments was $3.2 million, or 21% of revenue, versus 44% in Q2. Three factors drove that.
Trevor Smith: First, we sold through inventory built in H1 while our output was lower, so cost of goods sold carried H1 production cost and overhead not absorbed at the lower output. Second, during the Jackson closure and the Vapen hold, we leaned more on third-party product, which only earns the retail margin. Third, with cultivation exited, our Phoenix manufacturing volume no longer covers that facility's overhead, which is why we are reducing it to packaging only. The Vapen hold has been lifted, while the Phoenix charges will carry into Q4. Our margin in any one quarter can move with the timing of production, harvests, and inventory decisions, so we look at it over several quarters. For the first nine months of the year, margin before fair value adjustments was 33.5%, up from 32.3% last year.
Trevor Smith: Adjusted EBITDA was $0.2 million, a 1.3% margin, compared to $3.4 million in Q2 and $1.5 million a year ago. Year-to-date Adjusted EBITDA is $6.4 million. Net loss was $4.9 million, compared with $0.3 million in Q2 and $2.6 million a year ago. Compared with a year ago, the increase mainly reflects three items: a $1.1 million swing in fair value adjustments, biological assets, and inventory, a $1.2 million increase to operating costs related to our larger Ohio platform and professional fees, and a $1.0 million swing in income tax, which includes our current tax estimate under Section 280E, pending the annual provision at the end of the year. Lower other expenses partly offset these. Year-to-date, our net loss narrowed to $6.1 million from $7.4 million a year ago. On cash, we generated $2.4 million from operations for 16% cash flow margin.
Trevor Smith: Last quarter, I told you the gap between Adjusted EBITDA and operating cash flow was timing, not trend, and that the Ohio inventory bills would convert to cash. It did. Inventory and biological assets came down by $1.8 million in the quarter. Our 2026 year-to-date operating cash flow was $5.2 million, compared to $6.4 million of Adjusted EBITDA. On the balance sheet, we completed the Jackson acquisition in August, funded through a replacement of our existing loans at a fixed rate. We also extended part of our East West Bank facility with the net proceeds of the Eloy sale to go towards paying it down. After quarter end, we extended the maturity of most of our App Pharm seller notes to 2029. For our seventh Ohio dispensary, we have a commitment for a construction and permanent loan of up to $2.4 million to fund the build.
Trevor Smith: We expect to purchase the land for approximately $1 million in November, with the remaining cost paid through the rest of 2026 and into Q2 2027. Notes payable were $36 million at quarter end, up from $29.8 million at 30 June, mainly reflecting the Jackson facility purchase, and our secured debt is about 55% of the appraised value. At the end of Q3, working capital was negative $12.1 million, compared with negative $0.9 million at the end of Q2. That change is mostly classification, as the East West Bank note 1, which matures in July 2027, and the portion of note 2 to be repaid from the Eloy sale proceeds are now considered current.
Trevor Smith: Separately, $4.1 million of the App Pharm notes that were reclassified as current liabilities as of 30 September have since been replaced, leaving about $2.4 million payable in January 2027. Working capital also includes our $11.5 million uncertain tax positions, which IFRS requires us to classify as current, even though the timing of any settlement is genuinely uncertain. None of it has been assessed or is due. As a reminder, the DEA's final order includes a non-binding recommendation for retrospective 280E relief, which could materially reduce the portion of that liability. No implementing guidance has been issued, so we haven't recognized any impact. We ended the quarter with $5.6 million in cash, up from $4.5 million on 30 June. Looking to Q4, some of the Q3 conditions will carry over as we finish absorbing the costs of scaling back Phoenix.
Trevor Smith: Our capital priorities are unchanged: strengthen the balance sheet, pay down debt, and fund Ohio's growth from our own cash flow. Thank you, everyone, for joining us today. Operator will now open it up for questions.
Operator: We will now begin the question-and-answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue. The first question today comes from Pablo Zuanic with Zuanic & Associates. Please go ahead.
Pablo Zuanic: Good morning, everyone. Eric, can we start with just a discussion on the Ohio market? Obviously, very strong numbers in terms of total sales growth, and even pricing seems to be up sequentially. Is that what you are seeing? On the other hand, we are seeing more stores, so there is more retail competition, and some people are beginning to worry now about price deflation at the retail level. Just your sense of where the Ohio market is and maybe a look forward in terms of how dynamics would play. Thanks.
Eric Offenberger: Thanks, Pablo. As we have talked about before, we do not do a per-store thing, what we are doing on a per-store level or rank and that. The overall state, I would say, is still very solid and performing like the numbers that you are seeing or reporting or the states reporting. But it is pure math. The stores are growing at a faster rate than the overall market is, so on a per-store basis or an average, it is coming down. We saw more, as Trevor mentioned, price compression on our margins in Q3 from things that happened with production and cost of goods sold flowing through, which are basic accounting issues, and then also with having to purchase more third-party product while we want to work through the administrative hold and the voluntary shutdown of the Jackson facility.
Eric Offenberger: So we anticipate those margins will start to recover, and we will have a little bit more what we consider to be a typical margin profile in that market. What is going to happen in the future? Your guess is as good as mine, but I think it is going to follow every other pattern that other states do, where you are going to see a little bit more price compression or competitive nature. We will see. A lot of it will start to come clear once we see what the government does with rescheduling and where that Section 280E impacts us all out by the industry.
Pablo Zuanic: Yeah. No, thank you. Just to follow up on the same topic, in terms of the production side of things, as you add more stores and you get to your eighth store by the H2 of next year, remind us of your ability to expand capacity in Ohio. Is it going to just be driven by better yields, or are you going to have to expand capacity there? Any sense of fund or the CapEx cost involved? Just a sense of that. The second part of the question is that there is this question going on in terms of will the industry increase capacity in Ohio, and at least in terms of the cultivation level 1 licenses issued, I think there is only one more that is become operational, right? So on the supply side, things remain quite tight, and capital remains tight.
Pablo Zuanic: I wonder how much people will really be able to expand capacity in Ohio. It is a two-part question, what you are planning to do with capacity in terms of what you can share in Ohio, and then your outlook in terms of I do not see the market being inundated with supplies as we have seen in other states, in part because very few new licenses have been issued. Correct me if I am wrong. Thank you.
Eric Offenberger: All right. Let us start with the overall market. I think your analysis is correct. I think that the market supply, I do not think it is behind demand. I think it is pretty comparable to demand. There are some people that are doing some expansion currently, that are working on it, that we know of. Those will start to come online, and it will adjust as things go. From our standpoint at VEXT, we have always been cautious about how we do things and what we look at and what is going to happen in the market, and we like to do things under a gradual type of growth. The answer to your question is, the facility can sponsor as much growth as the licensing right now in the state would allow. The facility's footprint allows this, and that was one of the reasons we made the determination to acquire the asset.
Eric Offenberger: We thought it was a better use of our capital than paying a lease or doing something else. That decision was made. As far as expansion of that facility and that, we are always prepared to expand it as it makes sense within the market. The market is going to dictate that to us and what we are seeing in our retail stores and what we are seeing on the wholesale market. No determination has been made at this time.
Pablo Zuanic: Right. Just a couple of more. I think you have disclosed this before, but just a reminder of, do you really have a sense of how much you are going to receive for the Eloy and Phoenix facilities once those two are sold? I think you have given the number before, but just a reminder. Thank you.
Eric Offenberger: Yeah, we really haven't given a number of what we're going to receive. What we've said is that we don't anticipate a loss on the sale of Eloy, and I think it's around $7.8 million that we have as assets held for sale. So, you guys can do the math yourself. That's been the disclosure, and you see nothing on the balance sheet that indicates we're taking an impairment or anything. So we still feel good about that number that we put on the books and that we talked about. But as far as what the final number's going to be, no, we don't see that yet until we close this transaction.
Pablo Zuanic: Right. Okay. That's all for me. Thank you.
Eric Offenberger: Thank you.
Operator: The next question comes from Paul Penney with Partner Capital Group. Please go ahead.
Paul Penney: Hey, good morning, Eric and Trevor.
Eric Offenberger: Morning.
Paul Penney: Going back to Ohio, what do you think the estimate the CapEx to be for 2027 to open the two remaining stores? When you look back on the first six that you've opened, what are some of the major learnings, maybe a pro and a con, that you'll take to the bank when you plan to open up the next two stores?
Trevor Smith: Good morning, Paul. This is Trevor. We actually disclosed, I think, the most CapEx forward-looking detail before in statements. I'll point you to the MD&A section 334264. Good feedback from you on prior quarters and trying to get us more disclosure on that. Consistent with that, Roberts Road is under construction. We expect to close the land purchase of about $1 million this month. Wright-Patt Credit Union, our existing lender, committed to that construction for $2.4 million, with the balance of $1.4 million coming from cash flow in next year, Q1. For store 8, Amelia, we're excited to announce that we got the provisional dual-use license. That store is going to be located on the east side of Cincinnati. Expecting it to open by Q3, H2 2027, obviously subject to regulatory approval. Similar cost profile on that build-out.
Trevor Smith: I think all in, we're looking anywhere from $1.9 million to $2.7 million, pretty consistent with the prior guidance we gave on it. With regards to learning, we really got to put that drive-through in at the beginning. That's been a major contributor and something we really want to prioritize. Outside of that, trying to avoid construction in the Midwest over the winter is the other one, which these stores, at least one of them, won't be able to avoid, but we're optimistic on Amelia with its timeline.
Paul Penney: Perfect. Thank you. Back to Arizona, can you give us a feel for the variance between what it costs you guys to produce biomass and what you are buying on the open market today? The second part of that question is, are you seeing any tightening of supply? Ohio and Arizona kind of have the tale of two cities in terms of one where biomass is extremely tight and the other where it is plentiful in Arizona. Any trends in terms of supply-demand dynamics for biomass in Arizona?
Eric Offenberger: Well, I think, Paul, the Arizona numbers are pretty much what you see that is published. That seems to be fairly accurate within, call it, 10% to 15% one way or the other, depending on quantities and stuff along those lines. That is really where it is at, and we historically have had decent yields we have reported, but we are not immune to cost increases in utilities, cost increases in labor, all of the things that are the inputs, so we pretty much track with the industry. I think most people will tell you indoor flower is going to be all absorbed somewhere in the $800 to $900 range. So, we are not immune to that. We pretty much participate with that average. We cannot defy it, is what I am getting at.
Eric Offenberger: That is really where the issue comes into, and I think what has really happened on the Arizona market, a lot of markets, is people start looking at it as a cash conversion business at this point in time as the market balances itself out and stuff along those lines. They look at it as a cash conversion, and as you are aware, in Arizona, we have a couple of large greenhouse operations that have some advantage on utilities versus some other people, and you see that impact in the market. On Ohio, different climate, different environment, different structure, not unlimited square footage, not differentials between greenhouse and indoors as significant because of the weather and the climate. So, we think that is a better market if you are going to be a cultivator and go through. So, that is what my comment would be, but Trevor might have some other insight.
Trevor Smith: Yeah, the other thing I am pointing to, Paul, making the shift out of Eloy was entirely strategic as well as to take advantage of that oversupply, which I think we have been giving guidance for multiple years now that we hoped would be transitional, and it just does not seem to be transitional. So, for our North Phoenix store, though, we were able to cut average price per gram selling by almost a whole dollar and still reported the first growth in that store in 5 quarters.
Trevor Smith: Top line certainly is responding to that in terms of us participating in the market rather than fighting it. Protecting margin was the whole reason we made the move on Eloy, and management was comfortable with that kind of price cut on the top line, and it produced a higher total revenue at the same time. We see challenge on that market dynamics for the foreseeable future, and it is consistent with our decision to exit Eloy.
Paul Penney: Great. Way to execute, guys. Good job. Thank you.
Operator: Once again, if you have a question, please press star then 1. The next question comes from Josh Felker with CB1 Capital. Please go ahead.
Josh Felker: Hey, good morning, guys. Thanks for taking the question. On Ohio, now that you have had some time with Fairfield open, could you give us an update on performance and ramp versus expectations? Is Fairfield still expected to be a top-performing store for you in the state?
Eric Offenberger: Well, like I've said, Josh, we don't do on a per-store basis, and we aren't going to change that. The overall market at Fairfield is we're building, and it's the first store that we've had in that Cincinnati region, and we're building in that marketplace. We're happy with the performance, we're happy with what Fairfield's doing, and it continues to grow, and we anticipate that it'll continue to grow. That section of the state still seems to be pretty attractive as far as anything we can gather as market intelligence, whether you're looking at published data out there. Yeah, we're happy with Fairfield. We're going to be happy with Amelia when we get it in, and we're happy with all the stores. That said, we do like the rural footprint too.
Eric Offenberger: We think that's still a good market for us, and we like if you ever map out what VEXT has done, it's in the Southeast the way we planned within a couple hours of our manufacturing facility. We kept true to that footprint. Trevor probably wants to add something to this too.
Trevor Smith: Yeah. Good morning, Josh. One other data point I'll give you. Our view is the state of Ohio declined 4.1% in the quarter on average store sales. All the market-wide growth was eaten up by additional retail locations, excluding Jackson, which had the interruption. Our continuing comparable stores only were down 2.6%. But we obviously grew in that whole market on the retail side, and all that growth is attributable to Fairfield.
Josh Felker: Got it. I appreciate that. In your prepared remarks, you noted a strong retail performance in Arizona, and I believe you just noted to Paul that some of that was a benefit from a new pricing strategy based on your lower inputs. I'm just wondering, should we model in any further derivative benefit on a forward basis for Arizona?
Trevor Smith: It's a good question. We'll obviously, as we mentioned, have the Q4 manufacturing impacts in terms of looking at it from a total statewide performance. Retail, it's only one quarter, so I don't want to call it a good trend, but we feel good about that direction. Short of any sort of major reconfiguration on the supply side that we're frankly not anticipating, we'd expect to continue to leverage our position as a buyer.
Josh Felker: If I could sneak in a last question. I think you're almost able to say that you've executed pretty much the entire Ohio strategy that you set out to originally execute on, replicating that Arizona playbook again. Just wondering, now that we're almost done, are you thinking about your ability to replicate that elsewhere? What is the strategy for what's next? Which markets are of interest and why?
Eric Offenberger: Well, we never tell you specific markets, but we feel like we have a responsibility to the stakeholders of the company to be constantly evaluating what we're doing and executing. So, right now, we're like everybody else. We're not going to tell you exactly what is what, but you have a responsibility to be constantly thinking about where the business goes next. I do appreciate your comment because I think we have done what we said we would try to do, and it's not always been easy or pleasant. Like in Arizona, when shutting down a manufacturing facility, it's not a pleasant thing. But we're going to continue with that model and that focus on how we allocate resources and where they go.
Eric Offenberger: The answer is, if the market looks promising and we feel like we can enter it with our plans and our platform, we tend to figure out a way to finance those types of transactions for the growth. So, I think those are opportunities out there that we're continuing to look at.
Josh Felker: Super. Appreciate it, guys. Thank you.
Eric Offenberger: Trevor, did you have any color on that that I might have missed?
Trevor Smith: No, just appreciate the comment, Josh. As we said, if the market makes sense to make, we will make. If it makes sense to buy, we will buy. We are absolutely focused on running these stores as effective retailers and maximizing supply chains, which are going to be market-specific. As you know, the rules can change and vary in who the operators are and what the supply side looks like in each market. It is a market-by-market decision. I am sure we would factor that into any future plans as well.
Josh Felker: Got it. Thank you.
Eric Offenberger: Thanks, Josh.
Operator: This concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
