Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Verano Holdings Corp (VRNOF, Financial) reported strong first quarter results with $221 million in revenue and 30% adjusted EBITDA margins.
- The company has a significant presence in states transitioning to adult-use cannabis, including Illinois, New Jersey, Connecticut, Maryland, and Ohio, positioning it well for future growth.
- Verano Holdings Corp (VRNOF) is well-prepared for the potential legalization of adult-use cannabis in Florida, with a deep footprint of 74 dispensaries and plans for further expansion.
- The wholesale side of the business showed positive growth, helping to offset some retail softness, with net wholesale revenue up 130% and net wholesale orders up over 300% versus the prior year.
- Verano Holdings Corp (VRNOF) has made strategic contributions and support to campaigns like Smart and Safe Florida, enhancing its community and industry engagement.
Negative Points
- Revenue for the quarter decreased by 3% compared to the previous year, primarily due to pressures in New Jersey retail as more dispensaries opened across the state.
- SG&A expenses increased to $90 million or 41% of revenue, up from 33% in the prior year, driven by new dispensary openings and investments in infrastructure.
- The company reported a net loss of $5 million for the quarter, influenced by the provision for income taxes under the restrictive 280E tax code.
- While the company is preparing for potential adult-use markets, there is uncertainty and risk associated with the outcomes of upcoming ballots and regulatory changes.
- Verano Holdings Corp (VRNOF) faces ongoing challenges with cash management and safety due to the predominantly cash-based nature of the industry, although potential federal rescheduling could alleviate some issues.
Q & A Highlights
Q: With the portal, what happened or how does your strategy change from the fourth quarter to the first quarter? In the fourth quarter, you had nice revenue and market share gains, but it looked like you gave some of that back. Was that related to you taking those wins down to increase the capacity? Did something change competitively in the market?
A: (George Archos - Chairman of the Board, CEO, Founder) The majority of the change was due to the construction at the large facility in Apollo Beach. This was anticipated and necessary, and we expect a significant bounce back coming into the summer.
Q: On SG&A, you've been managing it well with the store growth, which has been steady. This quarter, there was a slight revenue decline, so the rate went the wrong way for you, but there was also an increase in the core G&A. Was there something unique about the expense in this quarter? Or is this just the new G&A dollar level given the growth you're having at the retail level?
A: (George Archos - Chairman of the Board, CEO, Founder) The increase is due to new G&A dollars as we anticipate hiring throughout this year to prepare for new adult-use markets. We expect a bit of a hit there, but as in the past, we plan to enter these new markets in a strong and deliberate manner.
Q: Can you provide more specifics on any additional planned cultivation or how many stores you'd like to add in Florida, just in case for the adult-use scenario?
A: (George Archos - Chairman of the Board, CEO, Founder) We're not giving specific guidelines yet on what we're going to be doing. We're evaluating our current sites as well as some additional sites. Store count will grow throughout the year, and we already have some stores planned out and under construction.
Q: Can you talk about the expected margin impact from shifting the mix from retail to wholesale in New Jersey and Illinois?
A: (Brett Summerer - CFO) For every dollar that we have in the retail side, from a margin perspective, we essentially get $2 worth in the retail side for every dollar in the wholesale side. So, even though total sales in the state are going down, as long as the wholesale side is going up, we're still pretty happy with the mix of that pace.
Q: How prepared are you in Ohio in terms of cultivation and manufacture, especially if adult-use sales could start maybe ahead of expectations, possibly during the summer?
A: (Brett Summerer - CFO) We're prepared. We have everything in place, and we're ready to start adult-use sales immediately, although we anticipate a fall launch. Regardless, we're ready to go.
Q: What are your priorities for using the potential additional $80 million from taxes, and what are you seeing on the debt financing side?
A: (George Archos - Chairman of the Board, CEO, Founder) Our three targets are debt reduction, M&A opportunities, and CapEx, especially with three new adult-use markets on the horizon. We're also working with local state banks throughout the country on our real estate, anticipating that lender availability will improve soon.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
