Mr. Abner Kurtin reports

AWH ANNOUNCES Q2 2023 FINANCIAL RESULTS

Ascend Wellness Holdings Inc. has released its financial results for the three months ending June 30, 2023 (Q2 2023). Financial results are reported in accordance with U.S. generally accepted accounting principles (GAAP) and all currency is in United States dollars.

Q2 2023 financial highlights

• Gross revenue increased 28.4 per cent year over year and 7.0 per cent quarter over quarter to $151.0-million.
• Net revenue, which excludes intercompany sales of wholesale products, increased 26.1 per cent year over year and 7.7 per cent quarter over quarter to $123.0-million.
• Retail revenue increased 18.9 per cent year over year and 8.6 per cent quarter over quarter to $89.9-million.
• Gross wholesale revenue increased 45.3 per cent year over year and 4.7 per cent quarter over quarter to $61.2-million. Wholesale revenue, net of intercompany sales, increased 51.0 per cent year over year and 5.4 per cent quarter over quarter to $33.1-million.
• Net income of $800,000 during the quarter represented an improvement compared with a net loss of $21.2-million in Q2 2022 and $18.5-million in Q1 2023.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $21.3-million, representing a 17.3-per-cent margin. Adjusted EBITDA increased 2 per cent and margins declined 409 basis points year over year. Margins declined 308 basis points quarter over quarter.
• As of June 30, 2023, cash and cash equivalents were $68.0-million and net debt was $241.8-million.
• Generated $25.4-million of cash flows from operations, representing the second quarter in a row of positive operating cash flow. This included a benefit from the recognition of a $22.8-million employee retention tax credit (ERTC), of which $17.5-million was collected and then returned to a lender as debt repayment of an advance previously received. Excluding this inflow, cash flows from operations would have been nearly $8-million.

Business highlights

• During the quarter, the company announced it appointed John Hartmann as permanent chief executive officer of the company effective May 15, 2023.
• During the quarter, the company opened its ninth dispensary in Illinois, in Tinley Park. This is the company's first retail outlet store in the state of Illinois.
• During the quarter, the company closed the acquisition of four dispensaries in Maryland, marking AWH's expansion to a seventh state with a total of 31 operating dispensaries across all seven states.
• Subsequent to the quarter, on July 1, the company commenced adult-use sales at four dispensaries in Maryland.

Management commentary

"I am proud of the company for achieving another quarter of record revenue and cash generation, fuelled by growth across both our retail and wholesale businesses," said Abner Kurtin, executive chairman. "We were able to deliver a meaningful 26-per-cent revenue increase compared with last year and an 8-per-cent increase compared with the prior quarter."

John Hartmann, chief executive officer, commented: "With the team's strong performance in the quarter, we remain optimistic about the future of the business and continue to see substantial growth across all areas, particularly in our retail outlet model. As we expand our presence into Maryland's adult-use market and closely monitor Ohio's upcoming recreational cannabis ballot, we are confident in Ascend's continued success and potential for further growth."

Dan Neville, chief financial officer, added: "Our dedication to producing cash flow is evident as we generated nearly $8-million in cash from operations, excluding the receipt of the ERTC, and approached being free cash flow positive for the quarter. Further, we remain on track to generate cash from operations for the full year, marking a significant milestone in the company's journey to self-sufficiency."

Q2 2023 financial overview

Net revenue increased 7.7 per cent quarter over quarter, driven by growth in both the retail and wholesale businesses.

Total retail revenue in the second quarter of 2023 was $89.9-million, which represents an 8.6 per cent increase compared with the prior quarter and was driven by the full quarter benefit of the New Bedford, Mass., and Century, Mich., dispensaries, the opening of the Tinley Park, Ill., dispensary, and the acquisition of four dispensaries in Maryland.

Gross wholesale revenue was $61.2-million, a 4.7-per-cent sequential increase, driven by increases in revenue in New Jersey, Massachusetts, Michigan and Pennsylvania, partially offset by declines in Illinois and Ohio. Net wholesale revenue, excluding intercompany sales, increased 5.4 per cent sequentially to $33.1-million, driven by increases in third party wholesale sales in New Jersey and Massachusetts, partially offset by declines in Illinois, Michigan and Ohio.

Q2 2023 gross profit was $28.3-million, or 23.0 per cent of revenue, compared with $35.7-million, or 31.3 per cent of revenue, in the prior quarter. Q2 2023 adjusted gross profit was $44.9-million, or 36.5 per cent of revenue, compared with $47.6-million, or 41.7 per cent of revenue, in the prior quarter. Adjusted gross profit excludes depreciation and amortization included in cost of goods sold, equity-based compensation included in cost of goods sold, and non-cash inventory adjustments. Adjusted gross profit margin decreased 516 basis points sequentially driven by lower gross profit in Illinois retail and wholesale and New Jersey wholesale.

Total Q2 2023 general and administrative (G&A) expenses were $36.3-million, compared with $35.4-million in the prior quarter. Total G&A expenses as a percentage of revenue improved from 31.0 per cent of revenue in the prior quarter to 29.5 per cent of revenue as the company leveraged existing infrastructure, absorbed incremental revenue from the acquisition of four dispensaries in Maryland without meaningful incremental costs and continued to optimize the organizational structure.

Net income in the second quarter of 2023 was $800,000, which was driven by the recognition of the $22.8-million ERTC.

Adjusted EBITDA, which adjusts for tax, interest, depreciation, amortization, equity-based compensation, and other items deemed one-time or non-recurring in nature, was $21.3-million in Q2 2023. This represents an 8.5-per-cent decrease quarter over quarter driven by the aforementioned gross profit declines in the New Jersey wholesale and Illinois retail and wholesale businesses. Adjusted EBITDA margin of 17.3 per cent represented a 308-basis-point decrease compared with the prior quarter.

Conference call and webcast

AWH will host a conference call on Aug. 8, 2023, at 6 p.m. ET to discuss its financial results for the quarter ended June 30, 2023. The conference call may be accessed by dialling 888-390-0605. A live audio webcast of the call will also be available on the investor relations section of AWH's website and will be archived for replay.

About Ascend Wellness Holdings Inc.

AWH is a vertically integrated multistate cannabis operator with licences and assets in Illinois, Maryland, Massachusetts, Michigan, New Jersey, Ohio and Pennsylvania. AWH owns and operates state-of-the-art cultivation facilities, growing award-winning strains and producing a curated selection of products for retail and wholesale customers. AWH produces and distributes its in-house Simply Herb-, Ozone- and Ozone Reserve-branded products.

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