Kenric Tyghe

Kenric Tyghe asked about Aurora Cannabis's strategic decision to exit select Canadian consumer cannabis markets, inquiring about the expected revenue run rate post-exit and the potential for a complete divestiture from the Canadian consumer segment. He also questioned the potential disruptiveness and timeline of the premiumization strategy for the Australian medical cannabis market and its anticipated benefits.

Answer

Miguel Martin, Executive Chairman and CEO, explained that the market exits are being evaluated for financial benefits, emphasizing the reallocation of high-quality flower to higher-margin international markets. He noted that a complete exit from Canadian consumer cannabis is under continuous evaluation, driven by profitability and growth objectives. Regarding Australia, Mr. Martin stated the premiumization strategy is not disruptive, as the market is expanding beyond value products, aligning with Aurora's global focus on core and premium medical cannabis offerings for better margins.

Kenric Tyghe asked about Aurora Cannabis's strategic exit from select Canadian consumer cannabis markets, inquiring about the expected revenue run rate post-exit and the potential for a full divestiture from the Canadian consumer segment. He also questioned the potential disruption and timeline for the premiumization strategy in the Australian medical cannabis market.

Answer

Miguel Martin, Executive Chairman and CEO, explained that decisions regarding the Canadian consumer cannabis exit would be accretive to financial results, driven by resource reallocation to higher-margin international markets. He noted the company's flexibility and ongoing evaluation of a complete exit. Regarding Australia, Mr. Martin stated the premiumization strategy is not disruptive, aligns with their core/premium model, and is expected to be accretive to margins, leveraging the diverse product formats available in the market.

Kenric Tyghe of ATB Capital Markets asked about the expected evolution of the EBITDA margin in 2023, the key levers for improvement, and the company's performance and commitment to the California market.

Answer

CEO Jim Cacioppo declined to provide specific guidance but detailed several major initiatives to improve margins, including a 50% reduction in retail labor hours, a switch to more cost-effective packaging, and ramping up efficiency at grower-processors in Pennsylvania and Virginia. Regarding California, he stated the retail-only operations are running around breakeven and that the company has received acquisition interest for these assets, which it is considering as a way to raise non-dilutive capital.

Kenric Tyghe of ATB Capital Markets questioned whether the wholesale weakness in Illinois was due to competitors increasing their own brand penetration or broader market dynamics. He also asked about the potential impact of Maryland's adult-use market starting on July 1.

Answer

CFO and Interim Co-CEO Daniel Neville explained that most Illinois operators are already near their verticalization limits, attributing the weakness more to general market competition and the slow rollout of new social equity stores. Executive Chairman Abner Kurtin added that competitive pressure from other MSO brands was more pronounced in mid-2022. Regarding Maryland, Daniel Neville stated that its potential contribution is excluded from 2023 guidance due to transaction and regulatory uncertainties, but a July 1 start would represent potential upside.

Kenric Tyghe asked for details on the sequential transaction increase in Florida for Q4, as well as trends in the state's average basket size and the drivers behind it, particularly the trade-offs between premium and value products.

Answer

CFO Brad Asher reported that Florida's sequential transaction volume grew by approximately 20% in Q4, while the average ticket size decreased by about 3%, consistent with the company-wide trend. He highlighted that the high traffic in Florida stores represents a significant asset and a key opportunity to convert volume into higher-value sales by optimizing pricing and better introducing the company's premium brands.

Kenric Tyghe of ATB Capital Markets asked about the pricing dynamics for premium flower in Florida and the extent of any market price reset. He also inquired about the scale of the opportunity for Trulieve in Maryland, given the state's rapid transition toward adult-use sales.

Answer

CEO Kim Rivers clarified that demand for premium products saw an increase in units sold in Q4 with no significant quarter-over-quarter discounting. She noted the primary consumer shift was from mid-tier to value products, not from premium down. Regarding Maryland, Rivers stated it has been a great market where the team is focused on enhancing indoor production quality and product mix ahead of the recreational launch, viewing it as a significant opportunity for 2023.

Kenric Tyghe from ATB Capital Markets inquired about the level of promotional discipline in the market amid a worsening macro environment and whether this discipline could be maintained into 2023. He also asked for a breakdown of the 2023 CapEx guidance, specifically how much of the reduction was related to the terminated Goodness Growth deal versus a slowdown in core operations.

Answer

CEO & Founder George Archos noted that while promotional activity has been manageable, he expects it to increase during the holiday season. He expressed confidence in Verano's ability to compete with its new multi-tiered brand portfolio. On CapEx, he clarified that the terminated Goodness Growth acquisition would have accounted for 25% to 50% of the original plan, with the remainder of the reduction coming from scaling back cultivation expansions in Florida and Pennsylvania and a slower pace of retail openings.

Kenric Tyghe of ATB Capital Markets asked for an update on market share recovery in Illinois and the company's current perspective on the New York market, including the timing of the Goodness Growth acquisition.

Answer

CEO George Archos expressed confidence in regaining Illinois market share, citing improved greenhouse operations and the significant wholesale opportunity presented by 185 new social equity licenses. Regarding the Goodness Growth deal, he affirmed that New York remains a viable long-term market but emphasized that Minnesota is the 'jewel' of the acquisition. The company's positive view on the transaction remains unchanged.

Kenric Tyghe asked about Verano's ability to capitalize on new store openings in New Jersey and questioned the drivers of weakness in Pennsylvania, distinguishing between market factors and the vape recall.

Answer

CEO George Archos stated that Verano plans to wholesale to all new stores in New Jersey, viewing expansion as a positive for the legal market. He attributed Pennsylvania's weakness to the significant impact of a six-week vape ban and general market softness in January and February, but expressed optimism for a rebound with the upcoming launch of the Verano brand in Q3.

Kenric Tyghe from ATB Capital Markets questioned if the Q1 guidance for a mid-single-digit revenue decrease was due to broad-based macro pressures or concentrated in select markets. He also asked about any disruptions caused by the Q4 organizational restructuring and the expected long-term benefits.

Answer

CEO George Archos confirmed the Q1 softness was a broad macro trend affecting every market, not a Verano-specific issue, and noted the subsequent recovery in March was also seen across the country. He explained that the rebranding and restructuring began earlier in 2021 and caused minimal dislocation, though it did necessitate an inventory build-up in Q4 to prepare for 2022 launches and mitigate supply chain risks.