Aaron Grey

Aaron Grey of Alliance Global Partners inquired about the strategic rationale for converting to a Business Development Company (BDC), the potential impact on the investment pipeline, and how federal cannabis rescheduling might affect AFCG's portfolio and future opportunities.

Answer

President and CIO Robyn Tannenbaum explained that the BDC structure allows investment in successful cannabis operators who do not own real estate, significantly expanding their target market. CEO Daniel Neville quantified this, stating about two-thirds of opportunities are non-real estate backed. Neville also noted that rescheduling would attract capital, support asset valuations, aid in the recovery of troubled loans, and foster a healthier lending environment for the industry.

An analyst on behalf of Aaron Grey asked for more detail on the timing for the current deal pipeline to result in new originations and inquired about the expected yields on these potential new deals compared to the current portfolio average.

Answer

President and CIO Robyn Tannenbaum reiterated that the company would not provide guidance on the timing of originations due to market conditions but will announce deals as they close. Chief Executive Officer Daniel Neville added that while yields on new deals have ticked up slightly, the primary focus is on lending to higher-quality, proven operators, so yields should be generally consistent with deals done in the recent past.

Aaron Grey inquired about the strategic rationale behind the Viagro acquisition, the broader opportunity in the home gardening market, and the potential impact of tariff risks on gross margin performance.

Answer

CEO Darren Lampert explained that the Viagro acquisition provides key relationships with big-box retailers and product crossover potential, viewing it as a long-term growth driver for 2026. CFO Greg Sanders addressed tariffs, noting a ~$500k impact in Q2 and outlining mitigation strategies including sourcing diversification, leveraging scale with suppliers, and optimizing supply chain logistics to protect margins.

Aaron Grey of Alliance Global Partners inquired about incremental distribution opportunities for proprietary brands, both domestically and internationally. He also asked about the value proposition used to convert cultivators to GrowGen's brands and sought more detail on the potential margin impact from tariffs.

Answer

Darren Lampert, Executive, highlighted international expansion and partnerships with third-party distributors as key growth channels for proprietary brands like Drip and Charcoir. He credited their success in converting cultivators to a talented commercial team that runs extensive trials to prove product efficacy. On tariffs, Lampert noted the impact was more pronounced in the MMI segment and that the company is mitigating costs through vendor negotiations, manufacturing shifts, and improved distribution logistics.

Aaron Grey from Alliance Global Partners inquired about the expected cadence of gross margin improvement for 2025 and the company's strategy for shifting sales to its B2B e-commerce platform, including the future of its retail store footprint.

Answer

CFO Greg Sanders stated that gross margins are expected to see an immediate lift in Q1 and ramp throughout 2025, targeting 29-31% for the full year. Executive Darren Lampert added that the store restructuring to 31 locations is largely complete, and the new B2B portal is actively transitioning commercial customers, reducing the need for overlapping stores.

Aaron Grey asked for more detail on the strategy to expand the commercial business with larger MSOs and requested a breakdown of the drivers for reaching the 35% proprietary brand sales target, specifically between new products and legacy SKU growth.

Answer

CEO Darren Lampert detailed that GrowGen's value proposition for large commercial clients includes its robust distribution network, credit offerings, sophisticated accounting systems, and a talented commercial team that provides on-site support. Regarding proprietary brands, Lampert stated that growth is a combination of new product launches and the continued expansion of existing lines like Charcoir and Drip Hydro. He expressed confidence in achieving the 35% sales mix target in 2025 and potentially reaching the 40% range in subsequent years.

Aaron Grey from Alliance Global Partners asked for an update on the timing of the EU GMP certification and requested help quantifying the potential revenue and volume lift once it is achieved. He also questioned the company's view on U.S. investment opportunities and how federal rescheduling might alter their strategy.

Answer

CEO Beena Goldenberg stated that while the EU GMP certification timing is controlled by regulators, they remain confident in achieving it. The certification will improve margins by removing a middleman and expedite product flow. Regarding the U.S., she explained that rescheduling to Schedule III would not change federal illegality or their inability to conduct plant-touching business. Therefore, Organigram's short-term M&A focus remains on legal international markets, while continuing to leverage non-plant-touching U.S. investments in beverages and genetics.

Aaron Grey asked about Organigram's strategy for balancing international sales growth, which offers higher margins, against its domestic market share goals, and inquired about potential capacity constraints. He also questioned the medium-term potential for EBITDA margins and the key levers for improvement, including the breakdown and realization status of the increased synergies from the Motif acquisition.

Answer

CEO Beena Goldenberg explained that while international sales are attractive, maintaining domestic leadership is crucial for long-term stability as international markets may see price compression. She noted that capacity is being increased by 14,000 kg through LED upgrades and a new warehouse to meet demand from both channels. CFO Greg Guyatt added that of the newly projected $15 million in annual synergies from Motif, about $1.5 million of the targeted $5 million for the current year has been realized, primarily in COGS. He stated that future EBITDA margin growth will be driven by achieving a 40% gross margin target by H2 2026 and leveraging a stable SG&A base against rising revenues.

Aaron Grey inquired about the expected timeline for Organigram's EU GMP certification, potential delays, and the subsequent strategy for allocating production capacity between domestic and international markets. He also asked about the potential for further gross margin expansion.

Answer

CEO Beena Goldenberg stated that the EU GMP audit is pending a scheduling confirmation from German regulators for the fall, with certification anticipated in early calendar 2025. She confirmed that higher-margin international sales would be prioritized. CFO Greg Guyatt added that while they are pleased with the current 36% adjusted gross margin, they expect to maintain that level in the near term, with further expansion potential as the international business scales up next year.

Aaron Grey of Alliance Global Partners asked about the rationale behind expanding the Delta 2 facility, questioning if it was driven more by international opportunities or the Canadian market. He also inquired about the key drivers for the strong Q2 international sales and the outlook for the second half of the year.

Answer

CEO Michael Degiglio explained the Delta 2 expansion is a low-cost ($7M USD) conversion of an existing asset, not a new build, providing flexibility to match supply with demand. He noted the company is currently leaving about $50 million in revenue on the table due to capacity constraints. COO Ann Gillin Lefever added that Q2 international growth was driven by strong demand in Germany and the UK, along with onboarding new customers. For the second half, she indicated they are prepared for continued growth but are not providing specific guidance, acknowledging that other producers are also adding capacity.

Aaron Grey from Alliance Global Partners asked about the potential top-line impact from the CAD $15 million inventory impairment and sought clarity on the company's strategy for allocating production capacity between the Canadian and more profitable international markets.

Answer

COO Ann Gillin Lefever stated the impairment did not affect revenue because the product was deemed not high-quality enough to sell. CFO Steve Ruffini added it was a strategic decision to write down the inventory rather than sell it for minimal cash flow. CEO Mike DeGiglio noted the successful launch of the Super Toast vape validated this quality-first approach. Regarding capacity, Orville Bovenschen, President of Canadian Cannabis, explained that Canada remains the company's foundation and domestic demand for high-quality flower will always be met, even as they pursue strong international demand.

Aaron Grey asked about the strategic decision to pause the expansion of the Delta 2 facility, the future allocation of cannabis products between Canadian and international markets, and the specific causes of the out-of-stock issues for popular SKUs during the quarter.

Answer

CEO Mike DeGiglio explained that the pause on the Delta 2 expansion is a prudent capital allocation decision, driven by the 'egregious' Canadian excise tax and the desire to focus on higher ROI opportunities in Europe. He emphasized that capacity can be added quickly when market conditions in Canada improve. COO Ann Gillin Lefever clarified that the Q3 out-of-stock situation was an internal issue caused by higher-than-anticipated demand, not a problem with provincial buyers, and expects inventory levels to normalize by Q1 2025.

Aaron Grey from Alliance Global Partners asked about the drivers for the sequential improvement in gross margin, particularly within the cannabis segment, and whether there was a qualitative difference between Canadian and international operations.

Answer

Interim CFO Tom Stewart explained that Canopy Growth is focused on improving gross margins, with a target of low to mid-thirties by the end of the fiscal year. He attributed recent improvements to expanded production capacity, reduced temporary labor costs for key products, and prioritizing supply to the most profitable markets, noting these actions are a continuation of previously initiated efforts.

Aaron Grey inquired about Canopy Growth's international strategy, questioning if the asset-light model in Europe is sufficient to capture growing market share and whether this approach could limit profit margins compared to vertical integration.

Answer

CFO Judy Hong stated that the European business grew over 70% in Q3, driven by Poland and Germany. She affirmed the company's asset-light strategy, which leverages its Canadian GMP-certified facility and third-party European suppliers, is adequate for capturing growth. CEO Luc Mongeau added that he sees strong fundamentals in the global medical market and is currently reviewing the company's strategy and resource allocation.

Aaron Grey of Alliance Global Partners inquired about the timeline for closing the Acreage acquisition and when Canopy Growth expects to provide full financial disclosures for the consolidated Canopy USA entity.

Answer

CFO Judy Hong detailed the closing timelines, noting Jetty is complete, Wana is expected by the end of summer, and the Acreage acquisition is anticipated by spring 2025, pending state-by-state regulatory approvals. Hong stated that audited financials for Canopy USA would likely be disclosed after the Acreage acquisition is finalized. CEO David Klein added that regulatory approvals are the main gating item and that investors can look to other MSOs for comparable EBITDA margins, noting public company cost synergies will be realized once Acreage is integrated.

Aaron Grey asked how the decision to diversify with the IQHQ investment relates to the company's dividend coverage, particularly given the uncertainty around resolving tenant defaults and restoring that income stream. He also requested an update on the PharmaCann situation and how its recent debt maturity might be impacting negotiations.

Answer

Executive Chairman Alan Gold explained that the IQHQ investment provides an accretive, current income stream while the company works through the lengthy process of repositioning its defaulted cannabis assets. President & CEO Paul Smithers stated that regarding PharmaCann, the company is aggressively pursuing eviction to recover the properties and is not focused on PharmaCann's separate debt issues, as an amicable resolution on back rent appears unlikely.

Aaron Grey of Alliance Global Partners asked about the rationale for diversifying into life sciences via the IQHQ investment, particularly in relation to supporting the dividend amid uncertainty from cannabis tenant defaults. He also sought an update on the PharmaCann default process, considering their recent debt maturity.

Answer

Executive Chairman Alan Gold explained the IQHQ investment provides immediate, high-yield income while the company works through its cannabis portfolio challenges, noting it was a strategic opportunity they had been evaluating for some time. President & CEO Paul Smithers stated that regarding PharmaCann, the company is aggressively pursuing eviction to recover the properties and is not focused on PharmaCann's separate debt issues, as an amicable resolution on back rent seems unlikely.

Aaron Grey of Alliance Global Partners asked how the decision to diversify with IQHQ relates to supporting the dividend amid uncertainty from cannabis tenant defaults, and requested an update on the PharmaCann situation.

Answer

Executive Chairman Alan Gold explained the investment provides current income and diversification, giving the company time to work through its cannabis portfolio issues. Regarding PharmaCann, President and CEO Paul Smithers stated that IIPR is aggressively pursuing eviction to recover the properties and is focused on re-leasing them, rather than on PharmaCann's separate corporate debt issues.

Aaron Grey inquired how the need to maintain active cultivation operations influences the timing of resolutions with tenants and asked for more color on where the company sees opportunities to deploy its ~$220 million in liquidity, including outside of cannabis.

Answer

President and CEO Paul Smithers stated that transitioning a fully operational facility is the goal, which is more structured in a receivership but can also be achieved during an eviction through tenant cooperation. Executive Chairman Alan Gold noted that while they are evaluating many opportunities, any investment must be accretive, and they hope to announce new investments within 3-6 months, both in cannabis and other unique situations.

Aaron Grey requested more color on the security deposits applied for the four tenants other than PharmaCann and asked about the company's investment pipeline and potential for committed capital in 2025.

Answer

Executive Chairman Alan Gold explained that each tenant situation is unique and being handled directly, but he could not disclose specifics due to confidentiality agreements. Chief Investment Officer Ben Regin added that tenant health is linked to the overall industry's health. Regarding the pipeline, Mr. Regin stated that the company continues to be opportunistic and disciplined, leveraging its $235 million in liquidity to capitalize on the best available opportunities.

Aaron Grey of Alliance Global Partners asked about the key drivers for the significant sequential increase in the loan pipeline and inquired about the outlook for loan prepayments for the remainder of the year.

Answer

Co-CEO Peter Sack explained that the pipeline growth from $462 million to nearly $650 million was driven by increased M&A activity, operational reorganizations, ESOP transactions, and debt refinancings. Regarding prepayments, Sack noted that while they are difficult to predict, the large prepayments in early Q3 were likely an anomaly for the year but occurred at an opportune time given the strong pipeline of new opportunities.

Aaron Grey of Alliance Global Partners inquired about the composition of Chicago Atlantic's $462 million loan pipeline, seeking details on deal stages and the mix between CapEx and M&A opportunities. He also asked about the impact of industry-wide pricing pressure on the firm's underwriting assumptions, particularly in maturing markets.

Answer

Executive Peter Sack explained that the pipeline is primarily driven by CapEx and that deployments are expected to accelerate in Q2 and Q3. Regarding pricing, Sack stated that the firm has always underwritten with the expectation of price compression as markets mature, and as a lender, they have the flexibility to reduce exposure to states with increasing pricing pressure, a key factor in their risk and leverage analysis.

Aaron Grey asked for more detail on the changing profile of the loan pipeline, including the mix of M&A versus expansion, and inquired about the company's view on the upcoming 2026 'debt maturity wall' as a potential opportunity.

Answer

Managing Partner Peter Sack detailed that recent originations have been driven by idiosyncratic growth projects and M&A opportunities, supported by their large, relationship-focused originations team. On the topic of debt maturities, Sack expressed that the 'maturity wall' is often described in overly catastrophic terms. He believes the market will work through these maturities in the normal course and that Chicago Atlantic aims to be a lender of choice in those refinancing transactions.

Aaron Grey from Alliance Global Partners questioned the full-year 2025 guidance, asking for clarity on why second-half EBITDA is projected to be lower than the first half despite higher sales. He also inquired if the marketing for the new diaper launch could represent potential sales upside and asked for more details on those marketing initiatives.

Answer

CFO Curtiss Bruce explained the second-half outlook, noting that Q3 revenue will be impacted by lapping prior-year promotional events and a diaper distribution loss, with growth expected to re-accelerate in Q4. He detailed that a gross tariff impact of $8 million is now included in the full-year guide. CEO Carla Vernón added that the new diaper launch is supported by a full-surround marketing campaign across digital, streaming, and traditional media, influencer partnerships, and new packaging designed to highlight key benefits like leak protection and softness.

Aaron Grey asked for clarification on the Q1 sales beat, questioning the impact of shipment timing and the implied guidance for Q2, which suggests a potential sales decline. He also inquired about the marketing strategy and spending plans for 2025.

Answer

CEO Carla Vernon and CFO Dave Loretta explained that Q1 revenue included a 5-percentage-point pull-forward in shipments, primarily to Amazon, as part of their tariff mitigation strategy. They expect this to reverse in Q2, and combined with a tough comparison to a large retailer event in the prior year, this leads to a first-half growth rate in line with the annual outlook. Carla Vernon added that the company will continue to invest strongly in marketing to support the new diaper launch and expanded distribution, funded by SG&A efficiencies.

Aaron Grey of Alliance Global Partners asked about the cadence of the 2025 revenue guidance and the key distribution growth opportunities for the upcoming year.

Answer

CFO David Loretta explained that Q1 2025 growth is expected to be higher than the full-year average due to a soft comparable period in Q1 2024, with more challenging comps in the back half of the year. CEO Carla Vernon added that significant distribution opportunities remain, not just in new channels like dollar and club, but also by increasing product depth and assortment within existing key retail partners like Walmart.

Aaron Grey of Alliance Global Partners asked for quantification of the shipment benefits that impacted Q3 revenue and inquired about the company's confidence in continuing to invest in marketing and trade spend for growth versus prioritizing bottom-line profitability.

Answer

CFO David Loretta explained that approximately 3-4 percentage points of the 15% revenue growth were attributable to shipments for retail events, with the balance from strong underlying consumption. Loretta affirmed the company's confidence and flexibility in using marketing and trade spend to drive brand trial and awareness, citing the 23 basis point increase in household penetration as evidence of success, a strategy they plan to continue.

Aaron Grey questioned the drivers of the strong gross margin in the Stoker's segment, particularly the impact of nicotine pouches. He also asked for color on the second-half pouch sales guidance and the incentive structure for the expanding sales team.

Answer

CEO Graham Purdy explained that margins for the heritage Stoker's brands are healthy and expanding. For Modern Oral, he stated they are bullish on the long-term margin profile but anticipate some lumpiness due to investments. Regarding H2 guidance, Purdy said the range reflects uncertainty around the new ALP retail launch. He reiterated the plan to double the sales force by 2026 to compete effectively in what he called a "trench warfare" environment.

Aaron Grey of Alliance Global Partners asked for more detail on the strong gross margins in the Stoker's segment, particularly the impact of the modern oral pouch mix. He also questioned the second-half guidance for pouches, which implies flat growth versus the first half, seeking clarity on expected new distribution and how the expanding sales team is being incentivized.

Answer

CEO Graham Purdy explained that margins for the heritage Stoker's brands remain healthy and are expanding. For Modern Oral, he noted the current margin profile is strong but cautioned about potential lumpiness due to significant brand investments, while remaining bullish long-term. Regarding H2 guidance, Purdy attributed the range to uncertainties around the new ALP brick-and-mortar launch and D2C growth dynamics. He confirmed the sales force expansion is ahead of schedule to double by 2026, which will drive increased distribution.

Aaron Grey from Alliance Global Partners questioned the drivers of the strong gross margins in the Stoker's segment, particularly the impact of nicotine pouches. He also asked for color on the second-half pouch sales outlook, expected new distribution, and how the expanding sales team is being incentivized.

Answer

CEO Graham Purdy responded that heritage Stoker's brand margins remain healthy and are expanding. For modern oral pouches, he noted the company is bullish on the long-term margin profile despite expected lumpiness from investments. Regarding the second half, Purdy attributed the guidance range to the newness of the ALP retail launch but expressed confidence in the plan to double the sales force by 2026 to drive distribution in what he called a 'trench warfare' environment.

Aaron Grey asked for clarification on any significant shipment timing impacts for nicotine pouches in the quarter, such as initial channel fill for new retailers. He also inquired about the strategy to capitalize on the strong early brand awareness for ALP and whether its distribution would be accelerated. His second question focused on the Stoker's segment gross margin, which remained elevated despite the higher mix of lower-margin pouches, seeking more color on the pouch margin profile.

Answer

CEO Graham Purdy explained that the ALP brand's go-to-market strategy is distinct, focusing on an online model connected to its TCM affiliation, while the company concentrates on brick-and-mortar distribution for the FRE brand. Regarding margins, executive Andrew Flynn confirmed that the pouch margin profile is within the range previously communicated by the company.

Aaron Grey from Alliance Global Partners asked for more color on the distinct marketing strategies for the FRE and ALP brands. He also inquired about the drivers behind the Zig-Zag segment's gross margin decline and its sales and margin outlook for 2025.

Answer

CEO Graham Purdy clarified that the ultimate goal is to leverage multiple brands across all channels to capture the widest possible consumer base. For the Zig-Zag segment, Purdy reiterated a mid-single-digit growth outlook for 2025, supported by sales team investments. He attributed the recent margin pressure to a product mix shift into lower-margin categories, a trend he expects to continue but be moderated by leveraging fixed costs.

Aaron Grey from Alliance Global Partners inquired about SNDL's international supply chain, the margin profile of European sales versus Canadian sales, and the key drivers behind the liquor retail segment's return to growth, questioning if it was due to company initiatives or broader market trends.

Answer

CEO Zach George and CFO Alberto Paredero-Quiros explained that international margins are currently accretive but subject to volatility in the emerging European market. George attributed the liquor segment's growth to specific banner management, particularly the success of Wine and Beyond, which challenges the narrative of secular decline in alcohol consumption. Paredero-Quiros confirmed international sales margins are higher than the Canadian average.

Aaron Grey of Alliance Global Partners questioned the key drivers behind the fiscal 2026 EBITDA guidance, expected seasonality, and the supply-demand dynamics and potential pricing pressure in the German cannabis market.

Answer

CFO Carl Merton stated that the EBITDA growth will be driven by the international business, improvements in Canada and beverage, and cost savings from Project 420, with Q4 remaining the strongest seasonal quarter. CEO Irwin Simon added that achieving scale is a major factor. Regarding Germany, Chief Strategy Officer Denise Faltischek acknowledged price compression but noted Tilray is prepared through significant cost reductions and a robust supply chain.

Aaron Grey asked about Tilray's strategy of allocating cannabis to more profitable international markets at the potential expense of Canadian market share, and inquired about growth targets and marketing initiatives for the emerging hemp-derived beverage segment.

Answer

Chairman and CEO Irwin Simon explained that the company prioritizes overall profitability, driven by higher margins and no excise tax in international medical markets, over maintaining Canadian market share at any cost. For hemp-derived beverages, he highlighted the goal of building a multi-million dollar business by leveraging existing distribution, educating consumers, and implementing regional marketing and sponsorships.

Aaron Grey of Alliance Global Partners asked about Tilray's strategy for balancing business investment with profitable growth, the expected cadence and drivers for EBITDA throughout the fiscal year, and for clarification on the distribution strategy for its new hemp-derived THC beverages.

Answer

Chairman and CEO Irwin Simon explained that the first quarter is seasonally the lowest and that results were impacted by the timing of new product rollouts and cost-saving integrations. He noted that the Molson Coors acquisition impact is not yet reflected. Simon clarified that the new hemp-derived beverages will be distributed primarily through brick-and-mortar retail via the company's existing beer distribution network in 19 states.

Aaron Grey of Alliance Global Partners questioned the potential impact of the delayed Farm Bill and a new political administration on the regulatory landscape for hemp-derived Delta-9 THC beverages.

Answer

Chairman and CEO Irwin Simon characterized the Farm Bill's two-year delay as "good news," stating he anticipates no immediate regulatory changes. He emphasized the significant opportunity, citing strong demand from distributors and retailers and millions in sales already achieved in the quarter.

Aaron Grey asked for an outlook on Curaleaf's international business, inquiring about opportunities in Germany amid potential government changes and the impact of increasing competition in the European market.

Answer

Chairman and CEO Boris Jordan stated that Curaleaf does not anticipate changes to Germany's medical cannabis program, viewing a potential slowdown in adult-use as a positive. He acknowledged rising competition but noted that Curaleaf's margins in Europe are expanding due to its premium product offerings and operational scale, a trend expected to continue in 2025.

Aaron Grey inquired about the distribution strategy for Curaleaf's new hemp business, including direct-to-consumer, brick-and-mortar, and partnerships like DoorDash. He also asked about the nature of recent SG&A expenses related to international and hemp investments and their impact on the margin outlook.

Answer

CEO Matt Darin detailed the hemp launch, highlighting direct-to-consumer shipping to 25 states, a DoorDash partnership expanding to 13 states, and forthcoming brick-and-mortar distribution deals. Executive Chairman Boris Jordan clarified that the recent hemp and international integration costs were largely one-time startup expenses and that he expects gross margins to continue improving from the 50% level seen at the end of Q2.

Aaron Grey inquired about the early progress of cannabis reform in Germany, seeking details on initial demand, physician and pharmacy adoption, patient growth, and Curaleaf's educational initiatives since the April 1st legislative change.

Answer

Executive Chairman Boris Jordan responded that initial progress has surpassed expectations, with telemedicine platforms adding more patients in April than in their entire history. He noted that while Curaleaf's revenue growth is strong, the market is still in its early stages. Key bottlenecks include training doctors and scaling pharmacy packaging capabilities, but he confirmed the early signs are very positive.

Aaron Grey asked whether Farmer Bros. needs to expand its product offerings or simply increase awareness of its current portfolio, and questioned the potential risks from commodity volatility and future price increases.

Answer

CEO John Moore stated the immediate focus is on leveraging the newly unified national product portfolio to increase penetration with existing customers. Regarding pricing, Moore acknowledged record coffee market volatility but noted that sourcing changes and SKU rationalization have made the company more nimble. CFO Vance Fisher added that proactive pricing actions earlier in the fiscal year have positioned them well to manage market conditions, though they reserve the right to make future adjustments if necessary.

Aaron Grey of Alliance Global Partners inquired about the drivers for gross margin improvement, the strategic rationale behind the Indonesian farm acquisition, and the reasons for the increase in SG&A expenses.

Answer

CEO Michael Roper explained that gross margins are currently in line with the bulk commodity trading industry and are expected to improve as the higher-margin Canadian specialty crop business (e.g., lentils, pulses) expands. Regarding the Indonesian farm, Roper noted it provides geographic diversification and access to different, more specialized niche crops, which is part of the company's vertical integration strategy, a point echoed by executive Kevin Mohan. CFO Jennifer Black addressed the SG&A increase, stating it was driven by necessary investments in personnel and infrastructure to support expansion into new geographies, which precedes revenue growth. She expects this trend to continue as the company grows.

Aaron Grey asked about the future trajectory of gross margins and EBITDA profitability, and inquired about the most significant near-term revenue growth drivers for the next six months.

Answer

CFO Dany Vaiman explained that a $700,000 inventory impairment affected Q2 margins, but he anticipates consolidated gross margins to be in the mid-30s going forward. CEO Clifford Starke identified two key growth areas: the U.S. cannabis-infused beverage market and an e-commerce driven strategy in Germany.

Aaron Grey inquired about Flora's strategy to capitalize on Germany's cannabis reform, particularly regarding distribution, and asked for the company's perspective on opportunities in the U.S. hemp-derived beverage and edibles market for its JustCBD brand.

Answer

CEO Clifford Starke responded that the immediate opportunity in Germany is on the medical side, where simplified prescription processes have led to supply shortages for popular strains. He emphasized the company is positioning for the eventual commercial recreational market ('Phase 2'). Regarding the U.S. hemp beverage market, Starke called it an 'unbelievable category' with huge growth potential and stated Flora is 'extremely well positioned' to be a leader by focusing on quality and accurate dosing, drawing parallels to its early success in the gummy market.

Aaron Grey requested more detail on the full-year guidance for 'modestly higher revenue' and 'slightly better adjusted EBITDA,' specifically the balance between lending growth and deposit fee pressure. He also asked about the M&A pipeline for loan portfolios.

Answer

Executive James Dennedy explained the guidance reflects a revenue mix shift, with high-margin loan income growth expected to more than compensate for declining depository fees. Executive Sundie Seefried confirmed the M&A pipeline is active, with ongoing discussions to acquire loan portfolios from banks exiting the cannabis industry.

Aaron Grey of Alliance Global Partners inquired about the re-commerce business, asking for reasons behind the quarterly softness and inventory build-up, and whether the margin hurdle for deals has been raised. He also questioned the drivers of the 16.7% growth in the brand business and the future strategy regarding the e-commerce versus brick-and-mortar channel mix.

Answer

Executive Allan Marshall explained that the re-commerce slowdown was a strategic decision to prioritize capital for higher-margin brand investments, leading them to pass on re-commerce deals that didn't meet their stricter margin profile. He noted the brand growth was led by health and beauty, with significant reinvestment boosting sales, and stated that while all channels are being pursued, the focus remains on high-margin direct-to-consumer sales.

Aaron Grey inquired about the strategic reasons for the Q2 softness in the re-commerce business, questioning the margin profile for deals and the associated inventory build. He also asked about the growth drivers for the brand segment, specifically the performance of Tytan Tiles versus health and beauty, and the future strategy for e-commerce versus brick-and-mortar channels.

Answer

Executive Allan Marshall clarified that the decline in re-commerce revenue was a calculated decision to prioritize capital for higher-margin brand investments, rather than a lack of opportunities. He stated the company chose not to pursue re-commerce deals that didn't meet their margin targets, leading to an overall gross margin improvement to 38%. Regarding brands, Marshall noted growth is being pursued across all channels, with a primary focus on high-margin direct-to-consumer sales, highlighting a 30-40% sales increase for VitaMedica on Amazon following recent ad spend.

Aaron Grey of Alliance Global Partners inquired about the performance of the re-commerce business, specifically the reasons for its softness and inventory build in Q2. He also asked whether the company's margin criteria for re-commerce deals have become stricter. Additionally, Grey questioned the drivers of the 16.7% growth in the brand segment and the company's future strategy regarding its e-commerce versus brick-and-mortar sales channels.

Answer

Executive Allan Marshall clarified that the decline in re-commerce revenue was a deliberate strategic choice to allocate capital towards higher-margin brand products, rather than a lack of opportunities. He explained that the company prioritized deals with a better margin profile, which contributed to the overall gross margin improvement to 38%. Marshall confirmed that brand growth was led by health and beauty and that the company is reinvesting across all channels, with a primary focus on high-margin direct-to-consumer sales.

Aaron Grey of Alliance Global Partners inquired about the balance between growth and profitability, specifically regarding gross margins in the NETi and branded segments. He also asked if increased brand investment would impact near-term EBITDA guidance, questioned the timing of future Disney product launches, sought clarity on the company's balance sheet and liquidity, and requested an update on the Bloomios assets.

Answer

Executive Allan Marshall explained the strategy of investing heavily upfront in customer acquisition for brands like VitaMedica and Tytan Tiles to build long-term recurring revenue, even at the cost of short-term profitability. Marshall expressed confidence that margins would rebound to their target range of 5-8% due to significant cost-cutting measures, such as warehouse consolidation. He noted that new Disney products are planned for the first half of 2024. Regarding the balance sheet, Marshall stated the company is comfortable with its liquidity, actively managing its credit line and having flexible terms on its seller notes. Finally, he confirmed the Bloomios assets are a net positive, used for low-cost production, with their long-term strategy still under evaluation.

Aaron Grey from Alliance Global Partners asked about potential seasonality in the strong Q2 revenue, the strategy for expanding the Amazon liquidation business, and the primary factors behind the sequential decline in gross margin.

Answer

CEO Allan Marshall explained that Q2 revenue was stronger than anticipated, partly due to pulling some sales forward, and that significant seasonality is not expected in the coming year. He clarified that the Cygnet and E-Core businesses will collaborate to enhance liquidation margins. CFO Andrew Norstrud attributed the gross margin decline primarily to the business mix shift following the acquisitions of E-Core and Cygnet, which have structurally lower margins than Upexi's high-margin (70-80%) branded products.

Aaron Grey of Alliance Global Partners asked about the wholesale business, questioning if the impact from competitor verticalization has normalized and what drives success in non-vertical markets like Michigan. He also inquired about the drivers of strong performance in Florida and the state's promotional landscape.

Answer

CEO Charles Bachtell stated that pressure from verticalization is expected to continue and has not fully normalized. He credited Michigan's success to high-quality, differentiated products that 'speak for themselves'. Chief Transformation Officer Greg Butler added that Florida's performance is driven by strategic store openings and innovative products, and they compete in the promotional environment through superior products and cost efficiencies rather than expecting promotions to slow down.

Aaron Grey of Alliance Global Partners inquired about the financial rationale for the Columbia Care transaction, focusing on the pro forma debt structure, and also asked for clarification on Q1 gross margin performance, questioning if inventory adjustments were a factor as in the prior quarter.

Answer

CEO Charles Bachtell explained that the deal's financial viability hinges on proceeds from divestitures to achieve a healthy combined debt leverage ratio. CFO Dennis Olis clarified that Q1 margins were impacted by state revenue mix, not inventory charges, with a 270 basis point drag from a sales decline in high-margin Illinois. He anticipates margin improvement from cost-saving actions in California and Arizona to be reflected in future quarters.

Aaron Grey of Alliance Global Partners inquired about the EBITDA margin outlook for 2023, asking what pricing pressures were factored in and how much expansion could be expected following the operational changes in California and Arizona. He also asked about the anticipated impact of new social equity stores in Illinois on Cresco's retail and wholesale channels.

Answer

CEO Charles Bachtell explained that significant actions on SG&A and gross margin are being taken to not only maintain but also increase margins, supported by the larger-scale moves in California and Arizona. CFO Dennis Olis added that the full benefits of these actions will materialize in Q3, with new stores in Florida and Pennsylvania also contributing to growth. He projected EBITDA margins to be in the low 20% range for the second half of the year. Regarding Illinois, Bachtell noted a significant wholesale opportunity from new stores, which will eventually outweigh the initial competitive pressure on their existing retail locations. Chief Transformation Officer Greg Butler expressed confidence in their product velocity and loyalty programs to retain high-value customers.

Aaron Grey of Alliance Global Partners inquired about TILT's near-term operational priorities, focusing on the most achievable cost savings and revenue growth opportunities in the next six months. He also sought details on the company's strategy for entering new states, including the preferred business segments and the importance of vertical integration for expanding brand partnerships.

Answer

Interim CEO Tim Conder responded that significant cost-saving measures were implemented in Q2, with the focus now on profitable revenue growth and further operational refinement in the plant-touching business. Regarding expansion, Conder highlighted TILT's core competencies in hardware, cultivation, and manufacturing, explaining that new state entries will be strategically evaluated based on market size and maturity to support brand partners, with vertical integration being a key consideration.

Aaron Grey of Alliance Global Partners inquired about the drivers of gross margin degradation, the impact of selling bulk inventory, the growth outlook for the Jupiter accessories business in 2023, and the path back to positive adjusted EBITDA.

Answer

CEO Gary Santo explained that gross margin was impacted by selling off lower-value bulk and aging inventory from the initial harvests of their garden reboot. CFO Dana Arvidson added that while bulk prices were compressed, brand partner product pricing remained resilient. For the Jupiter business, Gary Santo noted a shift to smaller, more frequent orders and expects growth from new product innovation and winning back customers. Dana Arvidson stated that achieving positive EBITDA in 2023 will involve a combination of revenue growth, stable margins, and significant operational efficiency improvements, which Gary Santo specified would come from automating production lines.

Aaron Grey from Alliance Global Partners inquired about Greenlane's path to profitability, questioning the balance between sales growth from new nicotine products versus margin improvements from its asset-light model and cost cuts. He also sought an update on the company's strategy for increasing product penetration within MSO and independent dispensaries.

Answer

CEO Craig Snyder detailed a multi-pronged approach to profitability, emphasizing that significant expense reductions will accelerate in Q3 and Q4. He explained that the new asset-light model will boost gross margins, while the entry into the nicotine market is expected to drive sales in the latter half of Q3. Snyder also confirmed that the initiative to partner with MSOs has accelerated, as dispensaries increasingly focus on retail metrics to offset declining cannabis prices, positioning Greenlane as a key partner.

Aaron Grey from Alliance Global Partners inquired about Greenlane's path to profitability, questioning the interplay between the new asset-light model, nicotine product sales, and cost-cutting measures. He also sought an update on the company's strategy with Multi-State Operators (MSOs) and product placement in dispensaries.

Answer

Executive Craig Snyder detailed a multi-faceted approach to profitability. Snyder explained that significant expense reductions in facilities, labor, and G&A are set to accelerate in Q3 and Q4. On the revenue side, he noted the asset-light strategy will moderate top-line revenue but increase gross margins, with Q3 being the first full quarter of implementation. He also expressed optimism for a sales lift from new nicotine products in late Q3. Regarding MSOs, Snyder confirmed that engagement has intensified as these operators focus more on retail metrics like revenue per square foot, a trend Greenlane is positioned to support with its broad product array.

Aaron Grey of Alliance Global Partners inquired about the gross margin targets for 2023 needed to achieve EBITDA positivity, the primary CPG brands expected to drive growth, and the company's strategy for expanding distribution channels, including MSOs and head shops.

Answer

CEO Craig Snyder provided specific quarterly gross margin targets for 2023, aiming for 34.3% by Q4. He stated that growth would be driven by new products across four key brands: Groove, Eyce, DaVinci, and Higher Standards. Snyder also detailed an integrated distribution strategy targeting all customer sizes, noting that large MSOs are increasingly focused on ancillary product sales, which benefits Greenlane.

Aaron Grey from Alliance Global Partners asked about the drivers of excess supply and pricing pressure in the Israeli market and the potential for market rationalization. He also inquired about the company's path to profitability, questioning the sustainability of current gross margins and whether future improvements would come from revenue growth or further cost reductions.

Answer

CEO Oren Shuster responded that the excess supply in Israel comes from both local growers and imports, noting that the market is already seeing some players exit. He emphasized that IMC's premium segment remains insulated from price pressure. Regarding profitability, he stated that the full impact of recent restructuring and cost savings will be realized in Q3, but declined to provide a forecast due to the current competitive and unstable market environment, with significant market growth not expected until 2024.

Aaron Grey from Alliance Global Partners questioned the market dynamics in Israel, given the slowing patient growth, and asked about consumer trends like potential trade-downs versus demand for premium products.

Answer

CEO Oren Shuster acknowledged the Israeli market is competitive with flat patient growth. However, he emphasized that IM Cannabis's premium segment remains strong, which drove higher gross margins in Q1. Shuster believes the company's premium strategy is correct and that opportunities may arise from competitors' struggles, even if the overall market doesn't grow without regulatory changes.

Aaron Grey of Alliance Global Partners inquired about IM Cannabis's path to profitability, asking whether it would require top-line growth or if it could be achieved at current revenue levels through the announced cost-saving initiatives, and what gross margin levels would be necessary.

Answer

CEO Oren Shuster stated that the company is moving toward profitability even with its current revenue figures. He emphasized that the primary driver is cost optimization and realizing synergies, particularly from the recent restructuring after exiting the Canadian market, which eliminated duplicated management roles. Shuster confirmed these measures are sufficient to achieve profitability without relying on further revenue growth.

Aaron Grey inquired about the pace of store openings in Florida, asking if the current cadence is the new normal for both the medical market and a potential adult-use scenario. He also asked for an update on the planned relaunch of the loyalty program.

Answer

CEO Kim Rivers responded that Florida's patient growth remains steady and the market is not yet saturated, citing legislative changes like telemedicine for renewals. She noted significant investment hurdles for new competitors. Regarding the loyalty program, she explained its launch is dependent on a revamped website set to go live in Q3. The new points-based loyalty program will then begin a phased rollout in Q4.

Aaron Grey asked for more details on the upcoming relaunch of the customer loyalty program, including potential improvements and how it will be used in tandem with new marketing channels like Twitter to defend market share in Florida.

Answer

CEO Kim Rivers announced that a new, more personalized loyalty platform will launch in the second half of the year. The launch was paused to better define customer journey profiles, allowing the new program to be more intuitive and focused. She confirmed that new marketing platforms will be leveraged to promote the program's launch, describing the initiative as a potential 'game changer' for combining data insights to speak more directly to the consumer base.

Aaron Grey from Alliance Global Partners asked for color on expectations for average sales per store, particularly in Florida, amidst ongoing store openings. He also inquired about the timing of the ramp-up of the new 750,000 sq. ft. facility and how the company is managing the transition from legacy facilities to reduce inventory.

Answer

CEO Kim Rivers reported that company-wide, traffic increased by 5% while basket size was pressured by 3%, resulting in 2% retail growth. She affirmed that strategic store openings in Florida are still warranted. Regarding the new facility, Rivers explained that they are continuously monitoring production metrics to balance the ramp-up of the new, more efficient facility with the wind-down of legacy sites, with the goal of reaching a stable state by the end of 2023.

Aaron Grey from Alliance Global Partners asked for additional details on the wholesale revenue growth, specifically which geographic markets and brand tiers were the primary contributors.

Answer

President Anthony Georgiadis explained that a consumer trend of trading down has driven strength in the value-oriented &Shine brand portfolio. He identified eastern markets like Pennsylvania, New Jersey, and Maryland as areas of strength, while markets with intense competition and price compression, such as Nevada and Massachusetts, remain challenging.

Aaron Grey of Alliance Global Partners inquired about the company's vertical integration strategy, asking about the current mix of in-house brands in retail and the potential for CPG growth via third-party wholesale.

Answer

President Anthony Georgiadis stated that the level of verticality was similar to Q4 but that opportunities for optimization remain on a market-by-market basis. He emphasized the focus on building strong CPG brands, like Show Dogs, that can succeed on any retail shelf, indicating a continued push for third-party distribution.

Aaron Grey of Alliance Global Partners requested color on Green Thumb's brand mix and pricing strategy amid industry pressure, asking how the company manages price gaps between premium and value tiers and if it is satisfied with its market share.

Answer

CEO Ben Kovler expressed satisfaction with the company's current brand positioning but noted room for improvement. He highlighted RYTHM as a leading premium brand and &Shine and Good Green as key value offerings. Kovler emphasized that the company uses proprietary consumer data to inform its packaging and pricing decisions and believes there is further upside for its brands across all categories.

Aaron Grey of Alliance Global Partners asked how pricing pressure and difficult capital markets might drive a shakeout among smaller, non-vertical operators and if this could lead to more rational pricing.

Answer

CFO Anthony Georgiadis acknowledged this is a key dynamic, noting that the current environment of high taxes and expensive capital makes it much harder for new entrants. He stated that as oversupply pressures margins and cash, a shakeout is possible, and Green Thumb is watching carefully from its strong position.

Aaron Gray of Alliance Global Partners asked about the competitive dynamics in Florida, questioning why Verano's market share remained flat despite significant store openings and inquiring about the company's pricing strategy. He also sought details on the revised, lower CapEx plan, asking which markets were deprioritized and if this included the now-terminated Goodness Growth acquisition plans.

Answer

CEO & Founder George Archos acknowledged market softness in Florida, attributing it to hurricane impacts and broader economic pressures. He explained that Verano is introducing value-tier brands like Savvy to attract new customers without altering the pricing of its popular premium brands. Regarding CapEx, Archos confirmed the reduction is due to pausing projects in Pennsylvania and Florida and eliminating spending for New York and Minnesota following the terminated acquisition, which preserves cash.

Aaron Gray from Alliance Global Partners inquired about Verano's inventory levels and wholesale opportunities in New Jersey, overall wholesale performance, and targets for vertical integration in key markets like Pennsylvania.

Answer

CEO George Archos confirmed that New Jersey inventory is strong with new SKUs being added weekly, expressing a positive outlook for both retail and wholesale. He acknowledged some Q2 wholesale headwinds but noted incremental growth heading into Q3. Archos also explained that the rollout of the Essence and Savvy brands will enhance vertical integration across different price points. He clarified that the reduced CapEx guidance reflects adjusted adult-use timelines in Pennsylvania and Florida, but the company remains positioned to scale quickly.

Aaron Grey from Alliance Global Partners asked for details on the Q4 margin profile on an apples-to-apples basis and the expected near-term volatility. He also questioned Verano's strategy for balancing its own inventory needs with the wholesale opportunity in the newly launched New Jersey adult-use market.

Answer

CFO Brett Summerer attributed the Q4 margin pressure to seasonal holiday discounting and one-time SG&A costs, including acquisition expenses and year-end bonuses. CEO George Archos explained that while they initially scaled back wholesale in New Jersey to prioritize their own stores and medical patients, they have ample supply and plan to ramp up wholesale distribution within weeks to ensure Verano brands are available throughout the state.

Aaron Grey from Alliance Global Partners questioned the viability of the $600 per pound TTK fee in Massachusetts given falling wholesale prices. He also sought clarification on the M&A strategy, asking how acquiring other ancillary players, who are also facing headwinds, would fortify Agrify's position given its current capital constraints.

Answer

CEO Raymond Chang defended the TTK model in limited-license states, stating that Massachusetts wholesale prices of around $2,200 per pound still support the $600 fee. Regarding M&A, Chang argued that smaller ancillary players need to join a comprehensive platform like Agrify to gain access to MSOs. He emphasized that Agrify's extensive customer database, covering nearly all licensed cultivators, provides a powerful platform for cross-selling and penetrating the market with new, unique technologies.

Aaron Grey of Alliance Global Partners asked about the long-term strategy for performance-based fees in the TTK program, particularly regarding floor pricing in markets with increasing price pressure like Massachusetts. He also inquired about the early traction and conversations, especially with MSOs, following the launch of the VFU rapid deployment pack.

Answer

Executive Raymond Chang explained that Agrify's success is tied to its customers' success, emphasizing the overall ROI from higher yields and lower production costs ($300s/lb vs. industry $400-$500/lb). He noted that new TTK programs are selectively rolled out in high-priced markets, while legacy projects in mature markets have lower fees. Regarding the rapid deployment pack, Chang confirmed it has dramatically increased interest from MSOs by removing retrofitting barriers, and several new agreements are expected soon.

Aaron Grey from Alliance Global Partners inquired about the flat sequential Q1 revenue guidance, asking if seasonality or other factors were at play, and questioned how Agrify plans to convert its newly acquired, historically one-time purchase extraction businesses into a recurring revenue model.

Answer

CEO Raymond Chang explained that the flat guidance was due to slight seasonality in the extraction business and a 1-2 quarter delay in VFU shipments to Illinois caused by licensing lawsuits. Regarding the extraction business, Chang stated that Agrify is close to signing its first extraction-focused Total Turn-Key (TTK) deal and expects to recognize recurring revenue from this division within 2022, similar to the cultivation side which will begin generating recurring revenue in Q3 2022.

Aaron Gray of Alliance Global Partners inquired about the company's 9% price increase, its price positioning relative to competitors, and the current state of retail shelf resets following COVID-related delays.

Answer

President & CEO Ricky Wright responded that the company's pricing is well within the industry mean according to Nielsen data, and they have not yet observed any demand elasticity from the increases. He also confirmed that the retail environment has normalized, expressing confidence in achieving their goal of expanding from approximately 80,000 stores to between 90,000 and 110,000 stores in the next year, supported by new banners and increased SKU adoption by existing retailers.