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Earnings Transcript for GNRSW - Q1 Fiscal Year 2022

Operator: Good afternoon, everyone and thank you for participating in today's conference call to discuss the Greenrose Holding Company's financial results for the First Quarter ended March 31, 2022. Joining us today are Greenrose 's CEO, Mickey Harley, the company's CFO, Scott Cowen, and the company's President, Paul Wark. Before I introduced Mickey, I'd like to remind you that's during today's call, including the question-and-answer session, statements that are not historical facts, including any projections or guidance, statements regarding future events or future financial performance or statements of intent or belief are forward-looking statements and are covered by the safe harbor disclaimers contained in today's press release and the company's public filings with the SEC. Actual outcomes and results may differ materially from what is expressed in or implied by these forward-looking statements. Specifically, please refer to the company's Form 10-Q for the quarter ended March 31st, 2022, which was filed prior to this call, as well as other filings made by Greenrose with the SEC from time-to-time. These filings identify factors that could cause results to differ materially from those forward-looking statements. Please also note that during this call, management will be disclosing adjusted EBITDA. This is a non-GAAP financial measure as defined by SEC Regulation G. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure and a statement disclosing the reasons why company management believes that adjusted EBITDA provides useful information to investors regarding the company's financial condition, and results of operations is included in today's press release, that is posted on the company's website. With that I will turn the call over to Mickey.
Mickey Harley: Thank you, Operator. And good afternoon, everyone. It is a pleasure to speak with all of you today on our first earnings call as a de-SPAC public operating company. We are proud to have entered 2022 with our completed acquisitions of two high-quality cultivation operations
Scott Cohen: Thank you, Mickey. Change to our financial results, revenue in the first quarter of 2022 increased 15% to $8.2 million compared to $7.2 million in the year-ago quarter. The increase primarily reflects incremental revenue contributions from True Harvest compared to the prior-year the prior period which only included contributions from Theraplant. As Mickey mentioned, our True Harvest revenues were impacted by construction-related production interruptions during the facilities recent grow room expansions. While Theraplant revenues reflect headwinds from the slowing demand trends among licensed patients in Connecticut medical market during the second half of the year, as well as increased competition from the illicit market in particular. Cost of goods sold net for the first quarter of 2022 was 6.4 million compared to 2.7 million in last year's quarter. This increased primarily reflected significant adjusted for purchase accounting considerations in the fair value step-up of inventory of 2.1 million and costs associated with ramping up our expanded production capacity at both Theraplant and True Harvest. We also encouraged additional startup costs release to initial planting and production processes, and Theraplant steel production facility. While broader supply chain interruptions in inflation impact have affected our industry as they have in many other industries globally, we've taken proactive steps to mitigate into both True Harvest and Theraplant by increasing our inventory stock to the extent possible amid our internal production [Indiscernible] Arizona. We continue to closely monitor any potentially near and long-term impacts related to these macroeconomic concerns. Gross profit in the first quarter of 2022 was $1.8 million compared to $4.5 million in the year-ago quarter, reflecting a gross margin of 22.4% compared to 62.3% in Q1 2021. This decrease primarily reflects the aforementioned purchase accounting considerations in the fair value step-up of inventory, which negatively impacted gross profit by $2.1 million and gross margin negatively by 26%. The decrease also reflects increased costs associated with ramping our production capacity, as well as softer expected revenue performance during the quarter. General administrative expenses of the first quarter of 2022 were $5 million compared to $1.4 million in the prior-year quarter. This increase was primarily due to incremental costs contributions from True Harvest and additional corporate expenses of being a public operating company relative to the prior period, which again, only included expenses from Theraplant. Net loss in the first quarter of 2022 is $14.6 million compared to a net income of $2.8 million in the year-ago quarter. This is primarily attributable to revenue impacting the production interruptions of True Harvest and the demand hindrance of the Connecticut market I mentioned earlier, as well as increased interest expense of $6.6 million, purchase accounting fair value inventory step-up of 2.1 and intangible amortization of $4 million. Adjusted EBITDA for the first quarter of 2022, $0.1 million compared to $4.1 million in the year-ago quarter. The decrease was primarily driven by the lower level of gross profit we generated during the quarter, as well as expenses related to ramping up our expanded production capacity, it's Theraplant through partners, capital expenditures for the first quarter of 2022, $4 million compared to $1.4 million in the year-ago, quarter. The decrease primarily represents the completion of construction on Theraplant filter-based expansion, which concluded at the end of 2021, while we expect some incremental CapEx relating to completing this next phase of our grown build-out at True Harvest, as well as purchasing some additional processing equipment at True Harvest, we expect to operate at a more maintenance level quarterly run right after we complete our grow rooms at True harvest and begin restoring more normalized operations thereafter. At March 31st, 2022, cash and equivalent -- cash equivalents, mines restricted cash totaled $3.5 million compared to $9.1 million at December 31st, 2021. This decrease was primarily attributable to acquisition late expenses, and debt service. Finally, we have revised our full-year 2022 financial outlook due to ongoing demand headwinds within Connecticut's medical market, and the impact of construction-related production interruptions at True Harvest. We now expect revenue to range between $100 million to $120-million, with net income expected to range between a net loss of approximately $5 million to a net income of approximately $1 million, excluding any fair value adjustments to financial instruments and transactionally the expenses. In addition, adjusted EBITDA on 2022 is expected to range between $65 and $75 million. As a reminder, these projections assume an expected Q4 2020 to start for recreational Canada sales in Connecticut. We will continue to focus on growing the business through enhancing our operations, building and maintaining strong wholesale relationships, checking vertical integration opportunities, and providing high-quality products and communities we serve the book Connecticut and Arizona, supported by the operational foundation, we've established us far we believe we are well-positioned to address the growing market opportunities in our existing States, and pursue additional opportunities for growth in and around these markets. This concludes my prepared remarks. I'll turn the call over to Paul.
Paul Wimer: Thank you, Scott. As we progress further into 2022, we'll continue to build upon the platform with established with Theraplant True Harvest by deepening our presence in our current state markets and seeking additional expansion opportunities, both within our existing states and across other contiguous states, as the crack of opportunities arise. And our existing state markets we're comfortable with our current cultivation footprint as our growth capacity provides robust supply to our wholesale markets and has plenty of room for continued expansion. As Mickey mentioned earlier, our next step is to achieve vertical integration through building a retail presence in our multiple avenues we are evaluating to accomplish this. In addition to any available dispensary and license acquisition opportunities that arise in these states, both Connecticut and Arizona's regulatory structures allow operators to secure dispensary licenses through social equity partnership programs. These programs enable communities that have been disproportionately impacted by the war on drugs to pursue equitable ownership and employment opportunities within their respective States ' cannabis Industries. As we ramp our presence and operations in our existing states, we're actively seeking opportunities to partner with these applicants to support their communities and address the harm done by overly harsh drug laws. In Connecticut, current cultivators will have the opportunity to open an unlimited number of recreational stores as a minority partner in a social equity licensed partnership. In addition to the 12 general recreational dispensary licenses that are expected to be rewarded this year. We are currently working to participate in social equity license opportunities, and we will provide further updates as we advanced this process and track how the state's broader regulatory framework around recreational sales and licensing evolves over the coming months. I will also note that current medical dispensary operators in Connecticut had beginning has been given a licensed open one additional dispensary under the new regulatory structure. As these operators pursue this opportunity and filed a flip to recreational, we're benefiting from Theraplant strong wholesale relationships as our network of addressable dispensaries is poised to expand once recreational sales commenced. In Arizona, we're seeking potential dispensary acquisitions and social equity partnerships a like as we begin the early-stages planning our retail expansion states with Arizona's totaled in number of dispensaries capped at a 169 the state Department of Health Services issued its final 26 social equity Cannabis licenses on April 8th. We will continue to monitor any further updates on the State's social equity structure and evaluate potential partnership opportunities as they arise. As we seek to further enhance our current footprint, we intend to target and evaluate opportunities in the West and North Eastern U.S., particularly in contiguous states surrounding Connecticut and Arizona. Ideal targets include sizable vertically integrated operations in these incremental states. Having a vertically integrated foundation placed in Arizona and Connecticut will allow us to compete for new licenses and pursue additional opportunities to acquire branded product leaders with a multi-state presence. Over time, we aim to build a portfolio of high-quality brands across our growing platform, supplementing our current work to enhance the visibility and market share of the Theraplant and Shango brands in Connecticut and Arizona, respectively. While we've only just begun to ramp our operations and execute on our growth strategy, our solid cultivation-focused foundation and positioning within rapidly expanding early-stage recreational markets provides us the necessary flexibility to build a robust, multi-state platform. We're grateful for the support of our shareholders and the dedication of our team as we strive to establish Greenrose as high-quality, multi-state cannabis operator at scale. We'll now open up the call for Q&A. I'll hand back to the Operator.
Operator:
Mickey Harley: Thank you, sir. I'd like to thank everyone that attended the call today, and we look forward to speaking with our investors and analysts when we report our second-quarter results in August. Thank you.
Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.