Mr. John Hartmann reports

AWH ANNOUNCES FOURTH QUARTER AND FULL YEAR 2023 FINANCIAL RESULTS

Ascend Wellness Holdings Inc. has released its financial results for the fourth quarter (Q4 2023) and full year (FY 2023) ended Dec. 31, 2023. Financial results are reported in accordance with U.S. generally accepted accounting principles (GAAP) and all currency is in U.S. dollars.

Financial highlights:

• Gross revenue:
  • Q4 2023: Total revenue of $173.1-million increased 1.9 per cent quarter-over-quarter and increased 28.7 per cent year-over-year;
  • FY 2023: Total revenue of $635.2-million increased 30.3 per cent year-over-year.
• Net revenue:
  • Q4 2023: Net revenue, which excludes intercompany sale of wholesale products, decreased 0.8 per cent quarter-over-quarter to $140.2-million, and increased 25 per cent year-over year;
  • FY 2023: Net revenue increased 27.8 per cent year-over year to $518.6-million.
• Net loss:
  • Q4 2023: Net loss of $19.3-million compared with net loss of $15.1-million in Q4 2022;
  • FY 2023: Net loss of $48.2-million compared with net loss of $80.9-million for FY 2022.
• Adjusted earnings before interest, taxes, depreciation and amortization:
  • Q4 2023: Adjusted EBITDA was $32.4-million, a 9.6-per-cent increase quarter-over-quarter and a 14.8-per-cent increase year-over-year. Adjusted EBITDA margin was 23.1 per cent, a 218-basis-point increase compared with the prior quarter and a 207-basis-point decrease compared with the prior year;
  • FY 2023: Adjusted EBITDA was $106.5-million, a 14.3-per-cent increase year-over-year. Adjusted EBITDA margin was 20.5 per cent, a 243-basis-point decrease compared with the prior year.
• Balance sheet:
  • As of Dec. 31, 2023, cash and cash equivalents were $72.5-million, and net debt, which equals total debt less unamortized deferred financing costs less cash and cash equivalents, was $236.2-million.
• Cash flow:
  • Q4 2023: Generated $16.7-million cash from operations in the quarter, representing the fourth quarter in a row the company generated cash from operations. Generated $8.4-million free cash flow in the quarter, representing the second quarter in a row the company generated positive free cash flow;
  • FY 2023: Generated $54.5-million cash from operation in the full year, representing the first full year the company generated cash from operations since the company was founded. Generated $30.3-million free cash flow for the full year, representing the first full year the company generated positive free cash flow. Both of these metrics exclude the benefit of $20.8-million in cash that the company received throughout the year attributable to an employee retention tax credit.

Full-year 2023 business highlights:

• First full year generating positive cash from operations and positive free cash flow. Opened six dispensaries during 2023, made up of Grand Rapids, Mich.; New Bedford, Mass.; Tinley Park, Ill.; Piqua, Ohio; Sandusky, Ohio; and Northlake, Ill. Subsequent to year-end, the company opened a dispensary in Cincinnati, Ohio, bringing the total to 35 dispensaries.
• During the year, the company was the first multistate operator in the United States to launch the cannabis outlet model in select markets. Ascend outlets feature the same great products at everyday low prices. The company has deployed this model in eight of its dispensaries.
• In April, the company acquired four dispensaries in Maryland, marking the company's entry into its seventh state. Soon after the purchase, the company began adult-use sales in Maryland at the start of the program in July.
• Sold more than 165,000 pounds of product wholesale, more than doubling pounds sold compared with prior year. Full-year gross wholesale revenue increased in all six wholesale markets compared with prior year.
• Simply Herb brand rose to the No. 1 selling brand in Massachusetts. Ozone rose to No. 3 selling brand in New Jersey and remained No. 3 selling brand in Illinois. Over all, Ascend brands were No. 4 in all of the third party wholesale markets in which the company competes.
• Launched three new brands in the year: Royale, a superpremium brand; Tunnel Vision, a brand high in tetrahydrocannabivarin (THCV); and Common Goods, a value-based flower brand.
• In May, the company appointed John Hartmann as chief executive officer of the company. Later in the year, the company announced key leadership changes. These changes included the appointment of Mark Cassebaum as chief financial officer; the appointment of Chris Holzer as chief of operations; the appointment of Rick Wilkins as chief of stores; and the appointment of Denise Pedulla as chief legal officer and corporate secretary. Subsequent to the end of the year, Melissa Feck was appointed chief people officer.

Management commentary

Abner Kurtin, executive chairman of Ascend, said: "Thank you to our stakeholders for helping us deliver a strong Q4 and full year 2023. We remain excited about our future prospects, as we continue to anticipate positive changes in federal cannabis reform. Further to the federal progress, we are seeing promising advancements across the states. We were pleased Ohio voters endorsed adult-use cannabis in the fall and expect the program to roll out in the coming quarters. In addition to the legislative progress in Ohio, we have been happy to see the Governor of Pennsylvania's enthusiasm and call to action for his state legislators to draft an adult-use bill."

Mr. Hartmann, chief executive officer, added: "AWH had an excellent quarter and full year. Our notable achievements translated into impressive financial success, with 2023 net revenue reaching $519-million, a robust 28-per-cent growth from the previous year. This growth was fueled by expansion of both retail and wholesale businesses, including a 21-per-cent increase in the retail business driven by store openings and strategic acquisitions and a 47-per-cent growth in the third party wholesale business as we increased our presence in New Jersey, Massachusetts and Illinois. Despite cultivation challenges faced in Franklin, N.J., earlier in the year, and initial pressure on our Illinois retail from the start of neighbouring Missouri's recreational sales, we rebounded, achieving an adjusted EBITDA of approximately $107-million, reflecting 14-per-cent growth. Our key strategic initiatives and our commitment to execution ensured strong financial performance. In addition to this, we continue to see robust geographic diversification, and successful brand performance."

Mr. Cassebaum, chief financial officer, stated: "We are pleased to have generated meaningful cash from operations and free cash flow for the quarter and for the full year. This is particularly important as we are in the early stages of discussions to refinance our term loan due in August, 2025. These conversations have been productive, and we are pleased with the initial reception in the market. We remain committed to disciplined growth, and investing in low-risk capex opportunities that present a high return on invested capital."

Q4 2023 financial overview

Net revenue, which excludes intercompany sales of wholesale products, decreased 0.8 per cent quarter-over-quarter to $140.2-million. The sequential decrease was led by declines in Illinois retail, which were partially offset by new stores and gross wholesale revenue growth in New Jersey, Massachusetts and Michigan. Net revenue increased 25 per cent year-over-year driven by: the opening of six new stores; the acquisition of four Maryland stores; increases in third party sales in New Jersey, Massachusetts and Illinois; and an increase in intercompany sales in Massachusetts. These increases were partially offset by a decline in retail sales in Illinois.

Total retail revenue decreased 3.9 per cent sequentially to $97.3-million for the fourth quarter of 2023, largely led by declines in Illinois. However, these declines were partially offset by the three new store openings within the quarter and improvement in the company's Pennsylvania stores' performance. Notably, however, retail revenue increased 15 per cent compared with Q4 2022.

Gross wholesale revenue in the quarter was $75.8-million, up 10.4 per cent quarter-over-quarter. This was driven by gross wholesale growth in New Jersey, Massachusetts and Michigan compared with the prior quarter. Net wholesale revenue, after intercompany sales, was $42.8-million, up 7.1 per cent quarter-over-quarter. This improvement was driven by third party wholesale increases in New Jersey and Massachusetts. Q4 2023 represented the fourth quarter in a row where the company has experienced sequential growth in gross and net wholesale revenue.

Q4 2023 gross profit was $47.5-million, or 33.9 per cent of revenue, as compared with $43.6-million, or 30.8 per cent of revenue, in Q3 2023.

Q4 2023 adjusted gross profit was $60.1-million, or 42.9 per cent of revenue, as compared with $56.4-million, or 39.9 per cent of revenue, for 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, start-up costs included in cost of goods sold, and non-cash inventory adjustments. Adjusted gross profit dollars increased 6.5 per cent quarter-over-quarter, driven by an increase in gross profit dollar contribution from Athol, Mass., and Franklin, N.J. Adjusted gross profit dollars increased 12.4 per cent year-over-year, driven most notably by dollar improvements in Massachusetts, New Jersey and Maryland.

Adjusted gross profit margin on a consolidated basis increased 294 basis points quarter-over-quarter to 42.9 per cent. This was driven by improvements in utilization and productivity in Athol, Mass., and Franklin, N.J.

Total general and administrative (G&A) expenses for Q4 2023 were $47-million, or 33.5 per cent of revenue, compared with $40-million, or 28.3 per cent of revenue, for Q3 2023. G&A expenses as a percentage of revenue were up as a result of timing of certain expense accruals and one-time employment-related items.

Net loss attributable to Ascend for Q4 2023 was $19.3-million during the quarter compared with $11.2-million in the prior quarter. This $8.1-million variance is primarily a result of one-time compensation-related expenses.

Adjusted EBITDA, which adjusts for tax, interest, depreciation, amortization, equity-based compensation and other items deemed one-time in nature, was $32.4-million in Q4 2023, a 9.6-per-cent increase quarter-over-quarter. Adjusted EBITDA margin was 23.1 per cent, a 218-basis-point increase compared with Q3 2023.

Full year 2023 financial overview

Net revenue, which excludes intercompany sale of wholesale products, increased 27.8 per cent year-over-year to $518.6-million, driven by an increase in both the retail and wholesale business.

Total retail revenue was $371.2-million for FY 2023, a 21.3-per-cent increase year-over-year. The growth was driven by: the opening of six new stores; the acquisition of four stores in Maryland that started adult use in July; and the full-year benefit of adult-use sales in New Jersey. These improvements were partially offset by a decline in retail sales in Illinois, largely driven by start of adult-use sales in Missouri and additional retail stores coming on-line in the Chicago area.

For the full year 2023, the company expanded gross wholesale by 45.3 per cent revenue to $264.1-million. This was fuelled by growth in all six of Ascend's wholesale markets compared with the prior year. Net wholesale revenue increased 47.4 per cent year-over-year to $147.4-million, driven by third party wholesale growth in New Jersey, Illinois and Massachusetts.

Full-year 2023 gross profit was $155.1-million, or 29.9 per cent of revenue, compared with $134.6-million, or 33.1 per cent of revenue, for the prior year.

Full-year 2023 adjusted gross profit was $209-million, or 40.3 per cent of revenue, compared with $185.1-million, or 45.6 per cent of revenue, in 2022. Adjusted gross profit dollars increased 12.9 per cent year-over-year. Adjusted gross profit margin decreased 529 basis points year-over-year driven by margin declines in Illinois retail and New Jersey cultivation.

Total G&A expenses for 2023 were $158.7-million, or 30.6 per cent of revenue, compared with $137.1-million, or 33.8 per cent of revenue, for 2022 as Ascend leveraged overhead to support new markets and further utilized its existing infrastructure.

Net loss for 2023 was $48.2-million, compared with a net loss of $80.9-million for 2022. This improvement was driven by an increase in gross profit and a lower provision for income taxes.

Adjusted EBITDA was $106.5-million in 2023. This represents a 14.3-per-cent increase year-over-year. Adjusted EBITDA margin was 20.5 per cent, a 243-basis-point decrease compared with 2022, driven by lower margins in Illinois retail and New Jersey cultivation, partially offset by lower G&A as a percentage of revenue due optimization of existing asset footprint and to increased leveraging of corporate infrastructure.

Conference call and webcast

Ascend will host a conference call on March 12, 2024, at 8:30 a.m. ET to discuss its financial results for the quarter and year ended Dec. 31, 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 Ascend's website.

About Ascend Wellness Holdings Inc.

Ascend is a vertically integrated multistate cannabis operator with licenses and assets in Illinois, Massachusetts, Maryland, Michigan, New Jersey, Ohio and Pennsylvania. Ascend 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. Ascend produces and distributes its in-house Common Goods, Simply Herb, Ozone, Ozone Reserve, Royale and Tunnel Vision branded products.

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