Earnings Transcript for AYRWF - Q4 Fiscal Year 2023

Operator: Welcome to the AYR Wellness Fourth Quarter and Full Year 2023 Earnings Call. Joining us today are AYR's President and CEO, David Goubert and the company's CFO, Brad Asher. Before we begin, we would like to remind everyone that certain comments from management during this presentation may contain forward-looking statements based on management's expectations. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as and must not be relied on by you as a guarantee, assurance, prediction, or definitive statement of fact or probability. Many of these risks and uncertainties are discussed in our most recent public filings, including most recently filed Annual Information Form and Management's Discussion and Analysis. Numerous risks and uncertainties could cause the actual events and results to differ materially from the estimates, beliefs, and assumptions expressed or implied in these forward-looking statements and might not be expressed today. Several of the factors that determine AYR's future results are beyond the ability of AYR to control or predict. In light of the uncertainties inherent in any forward-looking statements, you are cautioned against relying on these statements. While AYR may elect to update these forward-looking statements at some point in the future, AYR specifically disclaims any obligation to do so. During this presentation, we may reference non-GAAP financial measures such as adjusted EBITDA and adjusted gross profit. For a reconciliation of our non-GAAP measures to GAAP results, please see our earnings release posted in the Investor Relations section of our website earlier this morning. I will now turn the call over to AYR's President and CEO, David Goubert. You may begin.

David Goubert: Good morning, everyone and welcome to our fourth quarter and full year 2023 earnings call. I'd like to thank the entire AYR team for their execution of our financial and operational goals throughout the year, delivering record revenue, record EBITDA, and outpacing the industry in the growth of key profitability metrics. 2023 was a transformational year for AYR and while there remains significant work to be done, I am proud of what was delivered. When we gathered for our 2023 year-end call, we had only recently completed the transition of key Senior Leadership at AYR and outlined the core objectives that we seek to achieve throughout the year. For 2023, those objectives included growing our revenue base, enhancing our profitability metrics including cash flow from operations, and adjusted EBITDA, resolving the balance sheet overhang of our 2024 debt maturities and earn-outs and ensuring AYR is poised to capitalize on future industry catalysts. First, on a full year basis, we grew revenue 10% from $421 million in 2022 to $464 million in 2023, primarily from retail growth in Florida and both retail and wholesale growth in New Jersey as well as continued improvements in customer acquisition and retention as demonstrated by a 29% increase in total transactions in 2023 versus 2022. Through greater operating efficiencies and cost reductions, we grew adjusted EBITDA by 51% year-over-year to $114 million with EBITDA margin expanding from 18.6% in 2022 to 25% in 2023, which represented amongst the top EBITDA growth and margin improvements among major cannabis operators. We also generated $24 million of cash flow from continuing operations in 2023. Importantly, we expect to maintain 25% adjusted EBITDA margin in 2024 and believe we can achieve further operating leverage as revenues scale. With the extension of our 2024 senior secured notes, now complete as of February 7, 2024 we have deferred or retired nearly $400 million in debt maturities over the last year. With no meaningful maturities until 2026, $40 million of gross proceeds in new financing and additional proceeds expected to come from the recent warrant issuance, we view AYR as having one of the clearest financial runways over the coming years. These extensions enable continued optimization efforts and should ensure that AYR participates in the exciting catalysts that we believe are coming at both the federal and state level. With only 15 of AYR's 91 retail stores operating in adult-use markets today, we believe AYR has the highest relative exposure of any MSO to the recreational opportunities on the horizon in Ohio, Florida, and Pennsylvania. Ohio has already passed adult use and we expect this market to be up and running by Q4 of this year, while we anticipate Florida and Pennsylvania will transition to adult use in the near future. With 64 dispensaries in Florida and further plans to expand our presence, we are well positioned to tap the potential 6 billion adult-use cannabis opportunity in the state as well as the two to three times revenue growth opportunity that we anticipate from Ohio and Pennsylvania adult use without materially increasing our fixed cost base. As such, we anticipate another step function in operating leverage as revenue growth accelerates in each of those markets following the critical adult use conversions. And federally, the potential for rescheduling represents a significant unlock of cash flow for AYR via the elimination of the onerous and unjust 2ADP [ph] tax treatment. Moving on now to a few of our 2024 goals. A set of initiatives is already underway that we look to execute and improve upon throughout the year and those are improving our product quality consistency and variety, further streamlining our supply chain, continuing to rationalize and strengthen our CPG brand portfolio, and further establishing the AYR retail brand and improving customer loyalty. On improving product quality and consistency, personnel and structural changes in operations and supply chain with the arrival of Chief Operating Officer, George DeNardo, have led to faster execution, stronger SOPs, and increased productivity across those aspects of our business. Additionally, we've placed a major emphasis on optimizing genetics across our network of cultivation facilities to increase yields while also increasing the overall commercial appeal of what we grow. This process is well underway, utilizing multifactor decision-making that optimizes our genetic mix for yields, tech percentage, variety and novelty [indiscernible] profiles and other key commercial factors. Next, I'd like to speak to how we're further streamlining our supply chain. The personnel changes in operations have provided AYR with a stronger supply chain platform to build on throughout 2024, enabling our ambition across CPG brand building and retail. We're implementing process efficiencies and SKU rationalization across our facilities to better leverage our inputs. This means producing more derivative products like improved gummies with minor cannabinoids, live resin and resin [ph] concentrates, infuse pre-rolls and other infused products. This approach lowers our overall cost per pound with more efficient use of our growth base and further expands the product selection for our new cross-category CPG brand strategy. Additionally, we're undergoing a modest CAPEX build-out to further scale kitchen space across our facilities to increase efficiency and innovation. This allows us to produce more high-quality edibles at cheaper input cost and gives us a platform to be more innovative in developing new products across edibles and other infused products. Crucially, this also allows us to make more efficient use of cultivation and processing space, locating a larger portion of those facilities to high margin infused products like edibles. Moving on now to our efforts to rationalize and build our CPG brand portfolio. We've done most of the work in rationalizing and rebuilding our brand strategy, going from 12 brands to building around two core brands, Kynd and Haze, complemented by regional sub-brands. We are now entering the launch phase. We plan to use this -- on the cultural calendar like 420 and 710 at key times to reintroduce these brands and will be pursuing an aggressive launch time line leading up to them. We plan to introduce 27 new and rebranded SKUs prior to 420 across Kynd and Haze and another 33 between 420 and 710. The launch plans for our rationalized brand portfolio will also focus heavily on retail and wholesale activations, supporting adoption and sell-through of our brands. This will be especially prevalent in markets like Massachusetts, New Jersey, and Ohio, where we have strong expectations for wholesale expansion in 2024. Finally, touching upon how we further established the AYR retail brand and improve customer loyalty. We continue to harmonize under the AYR Cannabis Dispensary retail brand, providing us with name recognition that we did not have under the fragmented legacy store names. With that consistency in place, we've been able to build a new loyalty program, AYR Buds and we expect to launch the V1 of our customer-facing app in early Q2 2024, allowing us for a more tailored communication to our customers. Within the stores themselves, we've invested in better training for our budtenders, focusing primarily on improving average dollar sale to offset price compression with larger baskets and better understanding the customer journey and the lifetime value of our customers. Our ADS from repeat customers grew 3.3% from Q3 to Q4 2023, and we continue to focus on this throughout Q1 2024. Now before I turn the call over to Brad, I want to speak for a moment about the people and talent on our organization. Over the course of 2023, we worked diligently to build, optimize, and streamline the team that can deliver on our key objectives while making tough decisions to right size certain aspects of the organization. With that work behind us, we find ourselves in a much stronger position at the beginning of 2024 in both talent and efficiency. I'll now turn the call over to Brad to walk us through financials for the fourth quarter and full year 2023.

Brad Asher: Thanks, David and good morning, everyone. Full year sales of $464 million represents an increase of $42 million or 10% from prior year. The primary drivers for sales growth year-over-year came from two key markets, Florida and New Jersey. Florida was driven by further operational improvements and new stores, ending the year at 64 stores compared to 53 at the end of 2022. New Jersey was largely driven by a full year contribution of adult use conversion and the gradual expansion of our wholesale business in the state, which has grown sequentially each and every quarter, starting with our first wholesale transaction in the state back in Q3 of 2022. Growth in these markets was partially offset by increased competition and price compression, specifically in states like Massachusetts and Pennsylvania. Fourth quarter sales represent a slight increase of just under 1% sequentially in line with our guidance to be sequentially flat in the fourth quarter despite the approximate $5 million impact from Florida cultivation issues. With the exception of Florida, sales from every other market were either flat or up sequentially with a key contribution from wholesale growth in the fourth quarter. Wholesale increased 41% quarter-over-quarter and increased as a percentage of sales to 15% compared to just 11% on average through the third quarter. Outside of Florida, retail was overall flat sequentially with a 2% increase in retail transaction count, fully offset by a 2% decrease in basket size. Full year gross profit was $202 million and gross margin was 44% compared to $175 million and 38% in 2022. Full year adjusted gross profit was $257 million and adjusted gross margin was 55% compared to $228 million and 54% in 2022. Adjusted gross margin maintained in the mid-50% range despite the price compression over this period due to the efforts in 2023 on cost control, margin optimization, and increasing the percentage of retail sales from internal products from 59% in 2022 to 68% in 2023. In addition, the shift in state mix had a positive impact on margins with primary drivers of sales growth in 2023 being New Jersey and Florida. Fourth quarter adjusted gross profit was $62 million with adjusted gross margin of 54%, representing a slight increase from prior quarter despite the shift to wholesale in the quarter and the lower contribution from Florida, our highest margin state. We began to see recovery in wholesale pricing in Q4 of 2023, which helped to maintain margins driven by more finished goods and reduction in bulk sales, specifically in markets such as Pennsylvania and New Jersey. And on the retail front, managing inventory levels led to favorable pricing in Florida quarter-over-quarter. In addition, adjusted gross profit margins were maintained despite a decrease in the percentage of internally branded sales at retail down from 70% to 64% and excluding Florida, down from 52% to 44% as internal product was diverted to meet increased demand in the wholesale channel. We expect this to return to the previous range by midyear as we strategically ramp cultivation capacity in Massachusetts and New Jersey and expect to see further overall improvements in yields across our facilities as a result of process improvements in pre and post-harvest. Full year loss from operations was $37 million, representing an improvement from prior year of $170 million, driven by the $28 million increase in gross profit as well as a reduction in SG&A and noncash impairment of $35 million and $112 million, respectively. The reduction in SG&A includes expense reductions across nearly all key buckets, including comp and benefits, professional fees, marketing, T&E and various other operating expenses. Full year adjusted EBITDA of $114 million represents an increase of $39 million or 51% from prior year, primarily driven by the year-over-year increase in adjusted gross margin coupled with significant expense reductions. Adjusted EBITDA as a percentage of sales improved by nearly 700 basis points from 17.9% in prior year to 24.6% in 2023. Fourth quarter adjusted EBITDA represents an all-time high of $29.8 million, resulting in an adjusted EBITDA margin of 26% and a sequential increase of 5%, slightly exceeding our guidance to maintain an adjusted EBITDA margin of 25% in the fourth quarter. Moving to the balance sheet, we ended the year with a cash balance of $50.8 million. And after giving effect to the debt extension, which closed on February 7th, including the Pro Forma addition of the $40 million of new capital, our Pro Forma working capital position as of year-end is a positive 30 million. With the closing of these transactions, we've officially deferred nearly $400 million of debt to 2026, leaving AYR ample runway to further improve operations and take advantage of industry catalysts. Full year cash flow from continuing operations was a positive $24.4 million [ph], an improvement of $57 million from prior year, driven by the previously referenced operational improvements and working capital management and we expect to continue growing our operating cash flow in 2024. Cash used for CAPEX decreased $31 million year-over-year from $59 million in 2022 to $28 million in 2023. And we expect this trend to continue with approximately $20 million of CAPEX anticipated for 2024. From a tax perspective, we've been watching the latest industry developments very closely to inform our strategy as it relates to the application of Section 280E, which is an IRS code that limits the deduction of expenses to those directly related to the cost of goods sold. Our 2023 financials have been prepared subject to the limits of 280E consistent with all prior periods. We've been working very closely with our tax council regarding our legal interpretation of 280E. Based on this work, we anticipate updating our tax position to reflect the non-applicability of 280E, and we'll be in a position to file amended tax returns for the years 2020 through 2022 before the end of this month. We estimate these amended tax returns will result in a refund claim in the range of $50 million for previously paid income taxes related to 2020 through 2022, and we expect a shift in the majority of our outstanding tax liability moving from current tax liability to an uncertain tax position within noncurrent liabilities, starting with our Q1 financials. Due to the uncertain nature of the tax position, we are not relying or depending to any future refund for cash planning purposes, and we'll still continue to make tax payments in the ordinary course, absent the application of 280E on a go-forward basis. We continue to be optimistic about the future of our industry and the countless opportunities and catalysts embedded within our footprint, including the future conversion to adult use in 76 of our 91 stores as well as the prospect of rescheduling and the outsized tax impact this will have on our operating cash flow. While we continue to do everything within our control to optimize the business, including the reduction of expenses and shoring up our balance sheet, we are at the same time looking ahead, cautiously optimistic for the rapid growth and deleveraging that will take place with each catalyst. These near-term opportunities reinforce that we are in the right states at the right time. With that, I'll now turn the call back to David.

David Goubert: Thanks, Brad. Before concluding the call, I would like to take a brief look at our key markets across the U.S. In Florida, we are preparing for adult use by focusing on product quality, producing more products, including the expansion of Kiva edible portfolio, as well as the upcoming launch of canned gummies and planning to end 2024 with approximately 70 stores in the State. The temporary cultivation issue that we experienced in late summer continued to impact sales during the first six weeks of Q1 2024 but has since normalized. In Massachusetts, we gained market share into marginal retail growth despite the 35% increase in total store count in the State. However, we still have work to do on increasing awareness, improving customer retention, and upgrading menus. Wholesale will be a key focus going forward, and we plan to bring additional flower online beginning of Q2 2024 to continue the meaningful wholesale growth from Q4 2023 throughout 2024. In Nevada, we took actions to improve production efficiencies, expand retail gross margins, and focus on growing our leading market share in the State. New Jersey results have been impressive, and we defended our market share against the 65 recent store openings in the State. Wholesale nearly doubled in the fourth quarter, and we anticipate further growth moving forward as we further scale and bring on new offerings. Meanwhile, as I mentioned earlier, our assets in Ohio are some of the best positioned among MSOs to capitalize on adult use as we opened three stores in Q4 2023 via our support relationship and our 58,000 square feet cultivation facility is producing excellent quality products. We are also preparing for adult use in Pennsylvania by improving production capabilities as well as adding new products to the menu, which has already yielded positive results. And finally, we plan to open two new stores in both Illinois and Connecticut in the second half of the year. We expect revenue in Q1 2024 to range from flat to modest growth compared to Q4 2023 with the continuation of achieving the company's target of 25% adjusted EBITDA margin. We expect gradual improvement from the residual impact of cultivation strategies in Florida while continuing to build wholesale revenues. AYR expects to further ramp revenue, adjusted EBITDA, and operating cash flow later this year via like-for-like growth from our Florida footprint and our national wholesale business while adding six new stores in Florida, two new stores in both Illinois and Connecticut, and cohering [ph] adult use in Ohio towards the end of the year. I continue to be inspired by what the AYR team has accomplished over the past year. We made significant progress on improving our existing operations and positioning them to generate organic growth. With more than 80% of our retail footprint, prying for the near-term conversion to adult use, we believe AYR is in an industry-leading position to take advantage of the meaningful regulatory catalysts ahead. With our revitalized balance sheet, optimized cost structure, and multiple growth catalysts ahead, we are well positioned to increase both the top and bottom line in 2024 and beyond as we further position AYR as a retailer of choice with so after brands. Operator, we will now open the call up for questions.

Operator: Thank you. [Operator Instructions]. Our first question comes from Andrew Semple of Echelon Capital Markets. Please go ahead.

Andrew Semple: Good morning. Congrats on the solid Q4 results. One of the States you mentioned in terms of a rosier wholesale outlook in your head was New Jersey. So if I'm not mistaken, this is one of the states that maybe AYR has been a bit capacity constrained in the past. So if you could perhaps comment on what's driving that outlook for improving wholesale opportunities, are you seeing maybe any pressure in your own retail stores, or have you found some ways to get additional capacity available to you in that market?

David Goubert: Hey, good morning Andrew and thanks for the comments on the results of Q4. So yes, we're pretty happy with the results of New Jersey in Q4 that overall, when you take retail and wholesale together, we're up versus Q3. On the retail side, I'd say we continue to see the impact -- the positive impact of the expansion of Eatontown that happened over the summer. And we're pretty happy with the way our stores are maintaining market share or keeping a strong market share despite the number of dispensaries that are opening in New Jersey. So on the retail side, I would say the game is about maintaining or supporting as much as possible that market share. And to your point, meaning a lot of the growth that happened in Q4 comes from the wholesale side. We've been able to increase and say our ability to deliver finished goods, processing products, and that has helped us increase significantly the wholesale in New Jersey in Q4. So we expect that trend to continue. We think that there will be more pressure on the retail side but the game here on retail is very much a trend to maintain, support that market share. And then we expect more growth on the wholesale side as we continue to expand from a product that we are offering, expand from a capacity standpoint on processing products. So good stuff in Q4 and we expect more as we come in 2024.

Andrew Semple: Great, that's helpful. And then maybe going to the margin performance, great to see the strength on the margins despite the decrease in verticality and temporary setback in cultivation challenges in Florida. Maybe would you be able to call out any States in particular that were exceptional contributors on the gross margin line or whether that was more broad based across the organization?

Brad Asher: Yeah Andrew, thanks for the question. This is Brad. I would say it is probably not State specific but more segment specific to our wholesale business line I talked about, similar to New Jersey, ramping finished goods across wholesale. And so less bulk, less liquidation resulted in higher pricing and contributed to higher margins in the quarter.

Operator: Our next question comes from Russell Stanley of Beacon Securities. Please go ahead.

Russell Stanley: Good morning and thank you for taking my question. First, just around New Jersey retail. Wondering if you can update us on efforts to partner with structural equity licensees. You have, I think, up to seven new stores you can partner with. I'm just wondering what your outlook is there, how many openings we might see on that front in 2024?

David Goubert: Hey, good morning Russ, and thanks for the question. Yes, that's something that we're looking at very carefully and seeing what we can do to be part of that. We have already one partnership in place with the library that should be opening their dispensary in the coming months and we're looking at other opportunities. So nothing done at this point for us on that front, but that's something that we're looking at and seeing what are the opportunities that truly makes sense for us. So excited about the library coming online and looking at other opportunities as we go in 2024.

Russell Stanley: Thanks. And my follow-up relates to Massachusetts. We saw another one of your peers announced plans to acquire and develop and grow there. And given this was a market that was I think, price pressured some time ago and has been stabilized. Just wondering what you're seeing on the supply front, do you see additional supply coming online or are you're reasonably confident that the market can support your flower and a new product coming online from the peer plus whatever you see?

David Goubert: Yes. So we're still seeing that price remaining pretty stable in Massachusetts. And frankly, right now, we're selling everything we're producing. So at this point, we're not constrained from a demand standpoint. We're still more internally constrained from a production standpoint. So we keep increasing the capacity at our facility and we continue to think that we have an opportunity to increase revenue pretty significantly on the wholesale side in 2024. So not too concerned and not seeing that much increase in the market from a supply standpoint. And again, right now, we're more constrained by supply than we're constrained by demand, and we're selling everything we have. So the goal for us is on one side to continue to increase market share on the retail side. So we've been able in Q4 to slightly increase our market share despite the number of stores opening in Massachusetts, but the major game is obviously on the wholesale side. So we know that there's more stores that open in Massachusetts, and there's still more planned to open in 2024. So at this point, we think that it's rather still supply constrained.

Operator: Our next question comes from Matt Bottomley of Canaccord Genuity. Please go ahead.

Matt Bottomley: Yeah, good morning. Thanks for taking the questions here. I'm just wondering given that you mentioned that you'd be planning on filing amended tax returns related to 280E sometime in the next month, given that one of your peers have done that as well, and it's been sort of a hot topic in the last little while on the back of these earnings. Is there any color you can give us given that it's a relatively near-term filing for you guys, I understand you're not relying on potentially the money coming in, but just maybe the nature behind what or the context of what exactly the argument is for the refund and sort of the general sort of context to this seemingly being something that a lot of operators are going to be doing in the relatively near term?

Brad Asher: Matt, thanks for the question. Our tax opinion is tailored to our business and we don't want to go to specifics on what that opinion is. But I do agree with you that we expect the industry will continue to see more operators pursuing sort of variations of this tax strategy. So while our tax position is specific to our business, I don't think it's exclusive to us in terms of other operators pursuing similar strategies in the future.

Matt Bottomley: Okay, got it. Appreciate it. And I'm just wondering if you can talk to any specific promotional activity in the quarter in any of your core markets that you saw and if there's anything sort of transient in Q4 relative to some of the outlook and guide for Q1 and then thereafter into 2024?

David Goubert: So, hey thanks for the question. We -- I mean, as you flow through the margin results we didn't see more, let's say, discounting happening in Q4 versus what we saw in previous quarters. I would say that from a price compression and overall transactions, we actually rather saw that stabilizing and being slightly up in Q4. So we didn't see a major discounting happening. Obviously, you've got more actions, promotional actions happening around holidays than in the rest of the year, but that did not impact us significantly. I would say that market specific, the place where we've seen, I'd say, the most important change from a pricing and discounting standpoint is actually in Florida. So it's reversed to that discount that you're talking about. It's rather that because of limited availability for us in Florida, but also looking at setting up the right prices, we actually have reset prices in Florida. So overall, maintain the margin without additional, let's say, discount to Brad's point, on the wholesale side, rather less liquidation and more sales in finished goods. And if we look ahead at 2024, I would say the -- avoiding the impact of price compression by focusing on the average transaction in retail is going to be a key focus for us and where we want to make progress in 2024 versus 2023.

Operator: [Operator Instructions]. Our next question comes from Scott Fortune of ROTH MKM. Please go ahead. Scott Fortune from ROTH MKM, your line is live.

Scott Fortune: Yes, good morning and thank you for the questions. Just wanted you to provide a little more color on the Florida operations there and obviously, the $5 million impact in 4Q and you mentioned that kind of the first six weeks, you've worked through that. But just kind of a sense of that impact in the first quarter and moving into Florida as you add six stores throughout the year. But just kind of more the ongoing impact from here, what can we expect from an execution side on the Florida side going forward here?

David Goubert: Hey, good morning Scott, and thanks for the question. So yes, as we had guided to we had an impact of about $5 million in Q4 of the Florida disruption that we had in the late summer. I would say that, that was directly an impact of availability of product and especially on the flower side. We've seen some residual impact over, let's say, the first six weeks of 2024. A time for us to ramp up again, production on one side, but even more it's catching back up with our customers that we've not served as much, I would say, in Q4. So the remaining impact that we had in Q1 I'd say, is a mix of that residual impact from a production standpoint, but we're back on track and then the fact that it takes a bit of time to get back our customers. So as we are in March now, we're seeing very much that normalization and getting back to the numbers that we were seeing before in Florida and beyond as we develop our production capacity and our product offer in Florida. And I would maybe take advantage of that to talk about one category, which is edibles. As you know, we've put a pretty large emphasis on improving our edible offer with the Kiva products, but also our own Kynd products that's going to launch soon. We're still at this point, I'd say, around only 3% mix of edibles in our sales in Florida, and we have the ambition to get that at 10% or over 10% over the next few months. So I'd say we're back on track now in March and looking at the expansion, especially through production capacity and the new products launching.

Scott Fortune: Appreciate that detail. And then just a lot of focus on the wholesale opportunity for you, obviously, in a few key markets, Massachusetts, New Jersey, and Ohio. Is it mainly expanding into new third-party stores here, you're gaining shelf space there, and then you've mentioned putting a lot of emphasis on the Kynd and Haze brand lines, just help us understand what you're seeing from the consumer demand side and pricing strategies as pricing pressure kind of continues here, but it looks to be stabilized. Just kind of the emphasis on wholesale and then marrying that with the Kynd and Haze brand side of things here?

David Goubert: Yes, thanks. So yes, we're putting a significant focus. I mean, we plan on growing on retail, but we also put a significant focus in 2024 on wholesale. And you're right, the three key markets that will provide most of that growth are in Massachusetts, New Jersey, and Ohio. And so Massachusetts, as I talked about before, it's very much we're still constrained from a supply standpoint. So we're in the process of ramping our production. And from a pricing standpoint, we see that remaining pretty stable or potentially going slightly up on those wholesale price. And to your question about, is that with existing doors or adding new doors. Our penetration of doors in Massachusetts is, I'd say, only 25% to 30% of doors right now in Massachusetts. So we have still a lot of opportunities to open with new customers, new dispensaries, and as well as making sure that we have the right shelf space on existing customers. So that's the focus that we're having with a lot of sales of runway on that on Massachusetts. In New Jersey, it's very much new dispensaries opening and us serving those new dispensaries and here again, with expanding product offers. And Ohio it is ramping up of our cultivation. So we're -- we have a cultivation that can produce up to 40,000 pounds in Ohio, and I think we produced 6,000 pounds in 2023 and we've increased capacity since. So we're in that process of increasing capacity, which will serve our own stores that opened in November, but even more, we'll serve that growth from a wholesale standpoint. Now to your second part of the question on Haze and Kynd, as I was saying at the beginning, the -- those brands are ready in the sense that all the work that's been done in the background in terms of building the brand architecture and making sure that we have the right range of products and so on, all that work is done and we really want to use 420 and then 710 as two key moments for us to launch in a significant way those two brands, a bit more of a focus on Kynd in 420, but there will be some Haze new products and a bit more of a focus of Haze in 710 versus Kynd, but both will be present and really expand throughout that time. Where it's important to us, and you're talking about customers is that, we're not doing enough work today on having the right marketing support, marketing assets, and so on to develop our wholesale. So as we now provide that and have the support on those two brands, I think we can give more tools and a better job to our wholesale teams and our partners to actually promote those brands and have an even stronger business. So all of that comes together meaning the increase in capacity for wholesale, while at the same time launching the brands that are going to support it from a marketing standpoint.

Operator: Our next question comes from Frederico Gomez of ATB Capital Markets. Please go ahead.

Unidentified Analyst: This is Farah [ph] on for Federico. Just some commentary on how the Ohio stores are ramping and just generally what you're seeing in that state from a wholesale and retail perspective as the State prepared for the potential [indiscernible] later on this year? Thank you.

David Goubert: Yeah, hi, good morning and thank you. So overall, we're very excited about the Ohio market. And I would say that it's pretty much at the top of our priorities in 2024 in building up everything we need to build up to be ready for adult use in Ohio. We're hoping for that to be up and running in -- by September, I would say. But again, we'll need to wait and see from a regulation standpoint what's going to happen. On the three stores that opened in November, I'd say they are ramping up and growing every month. Now it's a slow ramp, and it's not an incredible business -- for those medical stores. And that is to be expected, especially in that transition year. So they're growing month after month, which is good but the volumes on the stores are still pretty limited and we think that the key focus is really preparing for adult use, both from a retail and wholesale standpoint. The other thing I would add on Ohio is that yet not confirmed, but we anticipate that we will be able to have eight stores as it turns adults. So one of the key focus in 2024, as I was talking about preparing for Ohio is making sure that we get to that place by the end of 2024, early 2025 and can max on the opportunity when it turns adult.

Unidentified Analyst: Awesome, thank you so much.

Operator: This concludes the question-and-answer session. I would like to turn the conference back over to David Goubert for any closing remarks.

David Goubert: Thanks everyone for being here and thanks for the questions. As closing, I just want to reiterate once again how proud I am of the progress that we've made in building our foundation and becoming more efficient in 2023. I think there's been a lot of work done and a lot of that work will actually show up in 2024. We talked about how the two brands Haze and Kynd are going to support it. We talked about the wholesale capacity development. There's a huge work being done as we speak on operations and the arrival of George DeNardo as COO a few months ago is already showing up very good progress. We're very excited about that. I think on the retail side, we're also seeing that [Technical Difficulty] going up. So the work being done on the retail side is very important as well, and I could talk about digital and loyalty. But overall, all this work that started in 2023 is very much -- should very much show up for us in 2024. At the same time, 2024 will still be, I think, a grinding year where we need to be focused on that like-for-like growth and modest expansion through the new stores and the expansion in the wholesale. But at the same time, we're laser-focused on being ready for the catalysts that are ahead of us. And we think we're exceptionally positioned to take advantage of these catalysts, whether it's Ohio that we just talked about, whether it's Florida, Pennsylvania, all the federal changes that we expect to happen in the coming months. So very excited about where we are, thankful to the team for the work being done. Looking at 2024 as a grinding year where we will grow top line and bottom line, but really very, very excited about the future in 2025, 2026 for AYR. And thanks everyone for being on the call. Thank you.

Operator: This concludes today's AYR Wellness Conference Call. You may disconnect your lines. Thank you for participating, and have a pleasant day.