Verano Announces Second Quarter 2023 Financial Results

 Verano Holdings Corp. (CSE: VRNO) (OTCQX: VRNOF) (“Verano” or the “Company”), a leading multi-state cannabis company, today announced its financial results for the second quarter ended June 30, 2023, which were prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”).

Management Commentary

“Our strong second quarter results demonstrate the effectiveness of the strategy we’ve executed since inception, and reflect the persistent rigor and discipline we harness in running our business every day,” said George Archos, Verano Founder, Chairman and Chief Executive Officer. “Our ability to generate record quarterly revenue and positive free cash flow while strengthening our balance sheet proves that despite ongoing fluctuations in the industry, we remain well-positioned to pursue potential growth opportunities.”

Archos added: “We successfully grew our retail footprint, launched our new On the Rocks solventless extracts and line extensions across our most popular brands in core markets, increased our retail and wholesale revenue in key states, strengthened our executive leadership team with key internal promotions, and leveraged our deep experience transitioning markets by welcoming adult use customers at our four Maryland Zen Leaf dispensaries on July 1. Since inception, we’ve built a sustainable business that has never depended on federal reform, and I remain confident in our ability to continue thriving in the current environment, bolstered by the strength of our brand portfolio, our expanding geographic footprint, and our increased free cash flow guidance for the remainder of 2023.”

Second Quarter 2023 Financial Highlights

• Revenue of $234 million increased 5% year-over-year and increased 3% versus the prior quarter.
• Gross profit of $115 million or 49% of revenue.
• SG&A expense of $85 million or 36% of revenue.
• Net loss of $(13) million.
• Adjusted EBITDA² of $72 million or 31% of revenue.
• Cash flow from operations of $24 million for the quarter.
• Capital expenditures of $8 million for the quarter.
• Free Cash Flow¹ of $16 million for the quarter.

Second Quarter 2023 Financial Overview

Revenue for the second quarter 2023 was $234 million, up 5% from $224 million for the second quarter 2022, and up 3% from $227 million for the first quarter 2023. The increase in revenue for the second quarter 2023 compared to the second quarter 2022 was driven primarily by strength from retail and wholesale adult use sales in New Jersey and Connecticut, slightly offset by retail declines in Pennsylvania and Arizona.

Gross profit for the second quarter 2023 was $115 million or 49% of revenue, up from $98 million or 44% of revenue for the second quarter 2022, and up from $109 million or 48% of revenue for the first quarter 2023. The increase in gross profit for the second quarter 2023 compared to the second quarter 2022 was driven primarily by improved vertical sell through of Verano products and lower cultivation costs.

SG&A expense for the second quarter 2023 was $85 million or 36% of revenue, down from $100 million or 45% of revenue for the second quarter 2022, and up from $75 million or 33% of revenue for the first quarter 2023. The decrease in SG&A expense for the second quarter 2023 compared to the second quarter 2022 was driven primarily by a decrease in salaries and benefits and lower general and administrative expenses due to acquisition related costs in the prior year period.

Net loss for the second quarter 2023 was $(13) million, versus a loss of $(10) million in the second quarter 2022, and $(9) million for the first quarter 2023. The increase in net loss for the second quarter 2023 compared to the second quarter 2022 was driven by an increase in interest expense and income tax.

Adjusted EBITDA² for the second quarter 2023 was $72 million or 31% of revenue, down from $76 million or 34% of revenue for the second quarter 2022, and up from $71 million or 31% of revenue for the first quarter 2023.

Cash flow from operations for the six months ended June 30, 2023 was $41 million, down from $44 million in the prior year period.

Capital expenditures for the six months ended June 30, 2023 were $17 million, down from $87 million in the prior year period.

Free Cash Flow¹ for the six months ended June 30, 2023 was $24 million, up from $(43) million in the prior year period.

2023 Guidance

• The Company raises the lower end of its Free Cash Flow¹ guidance for the year to $65-75 million, up from $50-75 million and reiterates its capital expenditures guidance of $35-50 million.

Second Quarter 2023 and Subsequent Operational Highlights

• Expanded the Company’s retail footprint across multiple markets by opening the following new stores: 
  • MÜV dispensary locations in Zephyrhills, Miami, Venice and Fort Pierce, raising the Company’s total Florida retail footprint to 70 storefronts statewide;
  • Zen Leaf Pittsburgh McKnight, the Company’s 17th affiliated Pennsylvania dispensary;
  • Zen Leaf Norwich, the Company’s first social equity joint venture location in Connecticut and third cannabis dispensary statewide;
  • and Zen Leaf Buckhannon, the Company’s fifth West Virginia dispensary.
• Announced key leadership promotions to executive team.
• Notified of vertical license win in Alabama following the state’s initial announcement of medical cannabis license awardees, pending final independent third-party review.
• Introduced On the Rocks^™ across core markets, a new multi-format brand anchored around solventless extraction methods.
• Welcomed cannabis customers at the Company’s four Maryland Zen Leaf retail locations to commemorate the historic launch of adult use sales on July 1.
• Appointed John Tipton and Charles Mueller to the Company’s Board of Directors.
• Active operations span 13 states, comprised of 132 dispensaries and 14 cultivation and processing facilities with more than one million square feet of cultivation capacity.

Balance Sheet and Liquidity

As of June 30, 2023, the Company’s current assets were $319 million, including cash and cash equivalents of $103 million. The Company had a working capital deficit of $(29) million and total debt, net of issuance costs, of $420 million.

The Company’s total Class A subordinate voting shares outstanding was 343,367,514 as of June 30, 2023.

Conference Call and Webcast

A conference call and audio webcast with analysts and investors will be held on August 8, 2023 at 8:30 a.m. ET / 7:30 a.m. CT to discuss the results and answer investor and participant questions.

• Investors and participants can register in advance for the call by visiting: https://conferencingportals.com/event/JCtRbgFn
• After registering, instructions will be shared on how to join the call for those who wish to dial in.
• On August 8, 2023, the live webcast can be accessed via the following link: https://events.q4inc.com/attendee/951011580
• The live and archived webcast will be available on the Events and Presentations page of the Company’s investor relations website at investors.verano.com.

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¹ Free Cash Flow is a non-U.S. GAAP financial measure. It is derived from U.S. GAAP Cash Flow from Operations, and is defined in this news release in the section below titled “Non-U.S. GAAP Financial Measures.” The reconciliation of Free Cash Flow to U.S. GAAP Cash Flow from Operations is set forth below in the tables included in this news release.
² Adjusted EBITDA is a non-U.S. GAAP financial measure. It is derived from EBITDA, another non-U.S. GAAP financial measure, and is defined in this news release in the section below titled “Non-U.S. GAAP Financial Measures.” The most comparable U.S. GAAP financial measure to Adjusted EBITDA is net income. The reconciliation of Adjusted EBITDA to U.S. GAAP net income is set forth below in the tables included in this news release.