Mr. George Archos reports

VERANO ANNOUNCES REVISED FOURTH QUARTER AND FULL YEAR 2023 FINANCIAL RESULTS

Verano Holdings Corp. has released revised financial results for the fourth quarter and full year ended Dec. 31, 2023, which were prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). (All dollar amounts are in U.S. dollars, except as otherwise noted.)

Subsequent to the filing of the original news release on Feb. 29, 2024, the company obtained new information related to the fair value of its Massachusetts cultivation facility and recorded a corresponding $9-million fixed asset impairment. As a result, the property, plant and equipment net balance has been reduced by $9-million and net income has been reduced by $5-million as a result of the impairment, net of tax effects. As a result of these changes, conforming modifications were also made to certain ratios.

Fourth quarter 2023 financial highlights:

• Revenue of $237-million, an increase of 5 per cent year over year and a decrease of 1 per cent versus the prior quarter;
• Gross profit of $118-million or 50 per cent of revenue;
• SG&A (selling, general and administrative) expense of $86-million or 36 per cent of revenue;
• Net loss of $77-million or negative 33 per cent of revenue;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (2) of $73-million or 31 per cent of revenue;
• Net cash provided by operating activities of $32-million;
• Capital expenditures of $10-million;
• Free cash flow (1) of $23-million.

Full-year 2023 financial highlights:

• Revenue of $938-million, an increase of 7 per cent year over year;
• Gross profit of $475-million or 51 per cent of revenue;
• SG&A expense of $332-million or 35 per cent of revenue;
• Net loss of $117-million or negative 13 per cent of revenue;
• Adjusted EBITDA (2) of $305-million or 32 per cent of revenue;
• Net cash provided by operating activities of $110-million;
• Capital expenditures of $36-million;
• Free cash flow (1) of $73-million.

Management commentary

"I'm incredibly proud of our performance in 2023, highlighted by key wins across all aspects of the business," said George Archos, Verano founder and chief executive officer. "As excitement and anticipation builds in the industry, 2024 has the potential to be a game-changing year, and Verano is well positioned to continue capitalizing on growth opportunities both in the current regulatory environment and from any state or federal reform. While we've never been dependent on legislation to drive sustained growth, with adult use imminent in Ohio, on the horizon in Florida and Pennsylvania, and the growing anticipation of a federal rescheduling decision, there is limitless potential for Verano. I'm thankful for all that our team accomplished in 2023, and believe the sky is the limit for what we can achieve in 2024 and beyond."

Fourth quarter 2023 financial overview

Revenue for the fourth quarter of 2023 was $237-million, up 5 per cent from $226-million for the fourth quarter of 2022 and down 1 per cent from $240-million for the third quarter of 2023. The increase in revenue for the fourth quarter of 2023, compared with the fourth quarter of 2022, was driven primarily by strength from wholesale adult-use sales in New Jersey, in addition to growth in Maryland and Florida retail.

Gross profit for the fourth quarter of 2023 was $118-million or 50 per cent of revenue, up from $103-million or 46 per cent of revenue for the fourth quarter of 2022, and down from $133-million or 55 per cent of revenue for the third quarter of 2023. The increase in gross profit for the fourth quarter of 2023, compared with the fourth quarter of 2022, was driven primarily by increased vertical mix and revenue growth.

SG&A expense for the fourth quarter of 2023 was $86-million or 36 per cent of revenue, up from $81-million or 36 per cent of revenue for the fourth quarter of 2022, and flat with $86-million or 36 per cent of revenue for the third quarter of 2023.

Net loss for the fourth quarter of 2023 was $77-million or negative 33 per cent of revenue, versus a loss of $216-million in the fourth quarter of 2022 and a loss of $18-million for the third quarter of 2023. The decrease in net loss for the fourth quarter of 2023, compared with the fourth quarter of 2022, was due to a $229-million impairment charge in the prior-year period. Excluding the impacts from impairments, net loss for the fourth quarter of 2023 was primarily driven by the increase in provision for income taxes as the company increased income from operations versus the fourth quarter of 2022.

Adjusted EBITDA (2) for the fourth quarter of 2023 was $73-million or 31 per cent of revenue.

Net cash provided by operating activities for the fourth quarter of 2023 was $32-million, up from $29-million for the fourth quarter of 2022.

Capital expenditures for the fourth quarter of 2023 were $10-million, up from $9-million for the fourth quarter of 2022.

Free cash flow (1) for the fourth quarter of 2023 was $23-million, up from $20-million for the fourth quarter of 2022.

Full-year 2023 financial overview

Revenue for the full year 2023 was $938-million, up 7 per cent from $879-million for the full year 2022. The increase in revenue for the full year 2023, compared with the full year 2022, was driven by a full year of adult-use contribution from New Jersey in addition to adult-use launches in Connecticut and Maryland.

Gross profit for the full year 2023 was $475-million or 51 per cent of revenue, up from $423-million or 48 per cent of revenue for the full year 2022. The increase in gross profit for the full year 2023, compared with the full year 2022, was driven primarily by increased vertical mix and revenue growth.

SG&A expense for the full year 2023 was $332-million or 35 per cent of revenue, down from $357-million or 41 per cent of revenue for the full year 2022. The decrease in SG&A expense was driven primarily by a decrease in stock-based compensation.

Net loss for the full year 2023 was $117-million or negative 13 per cent of revenue, down from a loss of $269-million for the full year 2022. The decrease in net loss for the full year 2023, compared with the full year 2022, was due to a $229-million impairment charge in the prior-year period. Excluding the impacts from impairments, net loss for the full year 2023 was primarily driven by the increase in provision for income taxes as the company increased income from operations versus the full year 2022.

Adjusted EBITDA (2) for the full year 2023 was $305-million or 32 per cent of revenue.

Net cash provided by operating activities for the full year 2023 was $110-million, up from $94-million for the full year 2022.

Capital expenditures for the full year 2023 were $36-million, down from $119-million for the full year 2022. Free cash flow (1) for the full year 2023 was $73-million, up from negative $25-million for the full year 2022.

2024 guidance

The company issued first quarter 2024 revenue guidance of a 5-per-cent-to-7-per-cent decline versus the prior-year period as the growing dispensary count in New Jersey continues to normalize.

Fourth quarter 2023 operational highlights:

• Expanded the company's retail footprint across key markets by opening the following new dispensaries:
  • MUV locations in Apopka, Satellite Beach and north Miami-Biscayne in Florida;
  • Zen Leaf Newington, a social equity joint venture dispensary, raising the company's Connecticut retail footprint to four locations statewide;
• Commenced trading on Cboe Canada, elevating the company's capital markets strategy and presence on a senior exchange with a global platform that spans 26 markets;
• Introduced Savvy Threads, a non-plant-touching e-commerce extension of the company's Savvy brand featuring limited-edition, artist-driven streetwear available for sale and delivery to all 50 states;
• Announced the company's participation in a coalition of industry stakeholders as a plaintiff challenging the legality of the federal government's intervention in legal intrastate cannabis commerce under the Commerce Clause and Controlled Substances Act;
• Launched reimagined (the) Essence brand, combining bespoke graphic art and terpene-rich full-spectrum products, including the new (the) Essence Nectar line, across core markets.

Subsequent operational highlights:

• Expanded the company's retail footprint across key markets by opening the following new dispensaries:
  • MUV Yulee in Northeast Florida, raising the company's current statewide retail footprint to 74 dispensaries;
  • In Pennsylvania, opened the company's largest nationwide dispensary, Zen Leaf Abington and Zen Leaf Norristown, both situated in prime Philadelphia area locations, elevating Verano's statewide footprint to 18 affiliated dispensaries;
• Current operations span 13 states, comprising 138 dispensaries and 14 production facilities with more than one million square feet of cultivation capacity.

Balance sheet and liquidity

As of Dec. 31, 2023, the company's current assets were $394-million, including cash and cash equivalents of $175-million. The company had a working capital deficit of $18-million and total debt, net of issuance costs, of $446-million.

The company's total Class A subordinate voting shares outstanding was 344,074,096 as of Dec. 31, 2023.

Conference call and webcast

A conference call and webcast discussing the results and answering analyst questions was recorded on Feb. 29, 2024, at 8:30 a.m. ET (7:30 a.m. CT).

The recorded webcast can be accessed on the events and presentations page of the company's investor relations website.

(1) Free cash flow is a non-U.S. GAAP (generally accepted accounting principles) financial measure. It is derived from U.S. GAAP net cash provided by operating activities, which is also its most directly comparable U.S. GAAP financial measure.

(2) Adjusted EBITDA is a non-U.S. GAAP financial measure. It is derived from EBITDA, another non-U.S. GAAP financial measure. The most directly comparable U.S. GAAP financial measure to adjusted EBITDA is net income (loss).

Non-U.S. GAAP financial measures

Verano uses non-U.S. GAAP financial information to evaluate the performance of the company. The terms EBIT, EBITDA, adjusted EBITDA and free cash flow do not have any standardized meaning prescribed within U.S. GAAP and therefore may not be comparable with similar measures presented by other companies. Accordingly, this non-U.S. GAAP financial information is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP.

The company calculates EBIT as net income (loss) before interest expense and income tax expense; EBITDA as net income (loss) before interest expense, income tax expense, depreciation and amortization; adjusted EBITDA as net income (loss) plus net interest expense, income tax expense, and depreciation and amortization, and also excludes certain one-time extraordinary items; and free cash flow as net cash provided by operating activities less capital expenditures.

Management believes that this non-U.S. GAAP financial information is useful as a supplement to comparable U.S. GAAP financial information because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP information to supplement their GAAP results. Management reviews these non-U.S. GAAP financial measures on a regular basis and uses them, together with financial measures included in the company's financial statements, to evaluate and manage the performance of the company's operations. These measures should be evaluated only in conjunction with the comparable U.S. GAAP financial numbers reported by the company.

About Verano Holdings Corp.

Verano, one of the U.S. cannabis industry's leading companies based on historical revenue, geographic scope and brand performance, is a vertically integrated, multistate operator embracing a mission of saying yes to plant progress and the bold exploration of cannabis. Verano offers a superior cannabis shopping experience in medical and adult-use markets under the Zen Leaf and MUV dispensary banners, and produces a comprehensive suite of high-quality, regulated cannabis products sold under its diverse portfolio of trusted consumer brands, including Verano, MUV, Savvy, BITS, Encore and Avexia. Verano's active operations span 13 U.S. states, comprising 14 production facilities with over one million square feet of cultivation capacity.

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