Green Thumb Industries Q326 Earnings Call - Green Thumb Industries

Good day and thank you for standing by. Welcome to Green Thumb Industries' third quarter 2026 earnings call. Please be advised that today's conference is being recorded. I would like to now hand the conference over to your first speaker today, Ashley Dunn, Vice President, Communications. Please go ahead. Thank you, Operator. Good afternoon and welcome to GreenThumb's third quarter 2026 earning call. I'm here today with founder and CEO, Ben Kobler. President Anthony Georgiatis, and Chief Financial Officer Matt Faulkner. Today's discussions and responses to questions may include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. These risks and uncertainty are detailed in the earnings press release issued today, along with the reports filed with the United States Securities and Exchange Commission and Canadian securities regulators, including our most recent annual report filed on Form 10-K. This report, along with today's earnings release, can be found under the Investors section of our website. Green Fund assumes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. Throughout the discussion, Green Fund will refer to non-GAAP financial measures, including EBITDA, normalized EBITTA, and adjusted EBITMA. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is included in our earnings press release and SEC and CDAR Plus filings. Please note that all financial information is provided in U.S. dollars unless otherwise indicated. Thanks, everyone. And now, here's Ben. Thank you, Ashley. Good afternoon, everyone, and thank you for joining Green Thumbs' third quarter 2026 earnings call. Let me start with the bigger picture before we get to the quarter. For more than a decade, Green Thumb has operated in an industry defined by uncertainty. No federal framework, no roadmap, and no guarantee that the rules in place today will be the rules tomorrow. Navigating that uncertainty isn't a side skill for us. It's a core competency. Our formula has not changed. We build brands people love, invest in our team, and protect the balance sheet. We delivered on all three again this quarter. On the last call, we talked about the industry being on the cusp of meaningful federal change. And the honest update is today, that process is ongoing. Medical cannabis is on Schedule 3, which is real progress, but the broader rescheduling decision is still pending. The federal landscape remains the single biggest wild card in our industry. But here's what we've learned. For years, we saw uplisting to a major U.S. exchange as the catalyst that would unlock value in this sector. But we've seen that a listing alone doesn't change how investors value the business. What institutions need is federal certainty, clarity on scheduling, and clarity on taxes. That's the real unlock, and that's where we're focusing our energy with policymakers and the investment community. tax clarity is a big part of that section 280e no longer applies to our medical business and treasury and the irs have made guidance on 280e one of their priorities for fiscal 2027 how soon that clarity arrives matters for us and for every operator trying to model its tax position separately our dea registration process is progressing with certain medical licenses now registered in Florida and Virginia and others pending. At the state level, Massachusetts voters overwhelmingly chose to keep the state's adult use program in place, with over 75% voting no on question eight. So while the industry is still in flux, we remain engaged across all kinds of regulatory scenarios. You can see that continued discipline in this quarter's results. Third quarter revenue came in at $324 million, up 11% year-over-year. Normalized EBITDA was $89 million, or approximately 28% of revenue. That margin is in line with the third quarter of last year, even with the pricing pressure we continue to see in several markets. Cash flow from operations was $58 million, a solid step up from the second quarter. We ended the quarter with $316 million in cash on the balance sheet, and this gives us real flexibility on how we deploy that capital. Pricing pressure persists in several of our markets, but our results remain a credit to our brands and to our team. Hemp policy is another area we're watching very closely. Under current federal law, intoxicating hemp products become illegal on December 11th, and a number of states have already moved ahead with their own bans or restrictions. Our position is that unregulated, untaxed, and untested products don't belong on store shelves. We've long viewed THC beverages as a distinct category from intoxicating hemp products, and we believe they should exist in a regulated market. These products have demonstrated real consumer appeal from major retailers to stadiums and entertainment venues. THC beverages are emerging as a viable fourth adult beverage category right alongside beer wine and spirits leading retailers and wholesalers have played an important role in that progress and their backing has given the category credibility even with the forthcoming changes to federal law consumers continue to reach for these beverages we should establish a reasonable framework for its future through all of this our brands remain strong at the end of the third quarter rhythm ranked number one nationally in branded flour and dog walkers ranked number-one nationally in uninfused pre-rolls dog walkers is also marking its 10-year anniversary this year reflecting a decade of brand of building brand equity with consumers cannabis is not a niche anymore it's competing for the same consumer as some of the biggest names in consumer packaged goods and beverage alcohol. And these companies are paying attention. Many are starting to invest in alternatives to alcohol, in some cases alongside live entertainment partners, which signals where the consumer is going. Green Thumb has the right brand, the cash flow, and the balance sheet to weather the regulatory uncertainty in the near and medium term. And that means we can be patient as we build these brands for the long run. On the capital allocation front, we continue to weigh three uses, growth capex as new state markets open up, M&A, and buybacks. In September, our board authorized a new $50 million share repurchase program. Since Q4 2023, we've returned more than $200 million to shareholders, purchasing about 29.5 million shares, or roughly 13% of the company, at an average price of about $7 per share. Going forward, we'll continue watching for opportunities, and when the time is right, choose whichever creates the most long-term value for our shareholders. One balance sheet note before I wrap up. On October 10, 2026, we began consolidating Rhythm Inc. into Green Thumb's financial statements rather than the equity method accounting. This was triggered by the removal of the cap on converting our rhythm notes and warrants, which requires consolidation under accounting rules. To be clear, we didn't buy any shares or convert any of our derivative securities, our current ownership has not changed, and we currently have no plans to convert. To close, regardless of federal policy, our business has real value that the market is not fully recognizing yet. Federal clarity should help unlock that, first by changing how investors view the industry, then through growth. But until then, we'll keep growing the business, investing in our team, returning capital to shareholders when it makes sense and moving decisively when opportunities come. Before I hand it over to Anthony, I want to thank our team, many of whom are listening right now, and we would not be where we are today without all of you, so thank you. With that, I'll hand itover to Anthony. Thanks, Ben. As you just heard, Q3 was a strong quarter for Green Thumb. We delivered solid top-line growth, held operating margins, generated significant cash flow, and extended our leadership positions across our brand portfolio, where we hold the number one market position in key markets, including Illinois, Maryland, and New Jersey. When we walked through, we drove the results. Starting with retail, revenue grew 10% year-over-year, led by Minnesota, where adult-use sales launched last September with continued growth in Florida, Ohio, Virginia, and Illinois, the latter aided by M&A completed earlier this year. Same-store sales across our base of 108 stores grew 3%, our first positive comp since the third quarter of 2024, and strong improvement from the 1% decline we reported last quarter. In Florida, despite persistent competition and pricing pressure, we've materially improved four-wall economics across the platform, led by the strength of our products and overall consumer value proposition, wider product assortment at retail, and continued operating discipline. The net effect was strong sales that allowed for nice operating leverage through the P&L. In CPG, gross revenue grew 16% year-over-year, driven by Minnesota and continued growth in Illinois, New Jersey, New York, and Ohio, partially offset by price depression and competition in several markets. In addition to the revenue growth, we remain extremely encouraged by our underlying brand and portfolio product performance, along with the progress we have made commercializing new innovative products that should continue to provide momentum to the business. On capital deployment, we continue to grow our retail footprint, opening six new RISE dispensaries in the quarter, two in Florida via Port Charlotte and Port St. Lucie, one in Sparks, Nevada, and three in Pennsylvania. in Hanover, West Mifflin, and Allentown. Subsequent to quarter end, we opened three more stores in Florida, bringing our total Florida footprint to 27 dispensaries and our national portfolio to more than 130 stores. CapEx was $20 million for the quarter, and we continue to operate full-year 2026 CapEx, anticipating full-years 2026 of approximately $80 million, excluding real estate purchases. Operating cash flow continues to fund our organic growth initiatives. Looking ahead, Virginia and Texas are our two most important state-level catalysts. In Virginia, adult use sales are scheduled to begin July 1, 2027. We are one of only five licensed operators in the state, with six ride dispensaries and two cultivation facilities. Applying lessons from our recent adult use launches in Minnesota, Maryland, and Ohio, we are preparing every part of the business for a step change in demand. Virginia has nearly 9 million residents and borders North Carolina, Kentucky, and Tennessee, where legal access remains limited. In Texas, we continue to make progress under our conditional license and the Compassionate Use Program. We recently purchased a facility that will act as our primary wholesale hub and actively have our real estate team hard at work identifying potential retail sites. While we intend to enter this market in a meaningful way, clarity on hemp and federal policy will help influence the pace of our CapEx dollars and team investment. On the macro front, the environment is largely unchanged from last quarter, with federal regulatory uncertainty, price compression, and a stretched consumer remaining as near-term headwinds. We're confident that our team, brands, operating discipline, and balance sheet position us to navigate these headwinds, and we continue to invest selectively where returns are most attractive. As we noted last quarter, our investments in the team weigh on near-term margins, but we view them as among the highest return investments we make. With that, I'll turn the call over to Matt. Matt? Thanks, Anthony, and hello, everyone. From a top-line perspective, revenue increased 11% year-over-year, driven primarily by adult-use retail sales in Minnesota and continued growth in existing markets, partially offset by price compression and increased competition in select markets. On a sequential basis, revenue grew approximately 6% from the second quarter. Looking forward, we expect fourth-quarter sequential revenue to be flat to down slightly due to the pricing environment. As Ben mentioned, our fourth quarter results will include rhythm on a consolidated basis beginning October 10th. Gross profit for the third quarter was $147 million or 45% of revenue compared to $144 million or 49% of Revenue year-over-year. The decrease in gross margin was driven by $15.8 million of brand licensing fees incurred in the current period. On a normalized basis, margins saw a slight improvement over last year. Turning to OpEx, selling general administrative expenses for the third quarter were $122 million, or 38% of revenue, compared to $107 million, which was 37% of the revenue for the last quarter. last year. The increase in total expenses was primarily attributable to overall compensation and benefit costs, along with increased costs associated with the opening, acquiring, and operation of retail stores. SG&A excluded depreciation, amortization, one-time transaction costs, and stock-based compensation, which we refer to as normalized operating costs, approximated $88 million compared to $75 million in the third quarter of last year. This increase was mainly driven by the 22 incremental retail stores. Our normalized EBITDA of $89.4 million, or 27.6%, was up from $80.2 million, or 27% last year, and was up to $8.2 billion last year in the second quarter of this year. On the bottom line, we reported a gap net loss of $4.8 million, or $0.02 per basic and diluted share. This compares the net income of $23.3 million, or $0.10 per share, in the prior year. The prior year period included a $42 million gain on sale of intellectual property. Income tax expense was $28 million compared to $49 million in the prior year, primarily reflecting the end of 280E for portions of our business following the reclassification of state legal medical cannabis to Schedule III. On taxes more broadly, timing matters. The delay of full rescheduling and 280E relief could mean the continuation of significant tax liabilities. Clarity on 280E would be meaningful not only for Green Thumb, but for the entire industry. We remain committed to maintaining financial flexibility so we can invest opportunistically in growth while managing risk. With that, I'll turn the call over to the operator for questions. Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 in your telephone keypad to raise your hand and join the queue. If you would like withdraw your question, simply press star 2. If you are called upon to ask your question and are listening by a loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. And your first question comes from the line of Aaron Gray with Alliance Global Partners. Your line is now open. Hi, good evening. Congrats on the quarter and thank you very much for the questions. So first question for me, just early days post yesterday's election, but curious, you know, if any, given the change in governorship in Texas, you knows, has that an impact on your outlook for a more favorable market and how aggressive you might be in the medical market as you await your final license there? Thanks. Yeah, Aaron, this is Anthony. I'll take that one. Really good question. You know, what I'll tell you is the dust is still settling. We're still kind of digesting yesterday's results. But heading into yesterday, the things that we were watching closely was hemp, as well as rescheduling overall. You know, and what we've been doing in parallel is working to operationalize the business. You know, in my prepared remarks, I talked about the facility that we just recently purchased outside of the Fort Worth area. And, you know, at the same time, kind of the results of last night certainly could have a impact on the TCOP program. I think we're all surprised by the clean sweep. So, you know, it's unclear at this point. I'd say we've got some work to do to kind of figure out if there is going to be an impact on The Program itself. We hope, if so, it will be to the positive extent. You know, but I'll just say, look, we're looking forward to kindof helping the new administrative, new administration kindof get this program really off the ground in a meaningful way and look to be a valuable partner to them in doing so. Okay, great. Appreciate that, Kyler. A second question for me. I know we've asked this a couple of times, but I wanted to ask again, just given where we are. With your healthy cash position and balance sheet, how are you thinking today in terms of prioritizing capital allocation between CapEx, M&A, and shareholder returns? I'll take it, Aaron. Thanks. Good question. and it's something we talk about and think about all the time, a lot of uncertainty where we tend to be a little more cautious. So M&A deals have to look a lot better. We have to understand the tax picture of what's going on out there even more clearly. And as things pop up in the business, that becomes a great place where we understand the markets and we understand what's coming up. So whether it's Virginia, Texas, Florida, other places, we can feel very confident putting our capital there. So we feel fortunate with the balance sheet we have. We're in no rush to do anything too intense. And we like the returns. We're putting the capital. We like the business we're building. And as soon as we can have some clarity on things that happen, we're ready to really pounce into where there's an opportunity. If you look just zooming out at the country, you're at $30 billion to $40 billion space. Maybe you use hemp as a bigger hire. You're at 50 billion. We're 2% to 5% of the industry. And the leaders in any industry of this kind of size with this kind of consumer reach in these sorts of brands should be far larger. So that's the future we see and, you know, the exact path and when and how remains to be seen and how the multiples work and what happens in the industry. But the brands are working and a lot of consumers are coming online. Him policy might go our way and that puts us in a pretty optimal spot. Okay, great. Appreciate that, Keller. I'll jump back in the queue. Sure. Thanks, Aaron. Your next question comes from the line of Kenrick Thaig with Canaccord Genmiti. Your line is now open. Thank you, and good evening. Just encouraged by your comments on Virginia and obviously understand how well positioned you are in the state in sort of absolute and relative terms, but could you speak to just how short biomass at launch that market's going to be, and what are your thoughts on the evolution of supply until we're in a more balanced market in Virginia, as certainly a number of your peers have been calling out a multi-year biomass shortage for the broader market? sure uh this is Anthony I'll take that uh I'll think that question as well so you know look it's uh it's really hard to predict you know obviously with the five incumbents um you know there is some capacity in the state I think that you know all of us have excess capacity that either has yet to be turned on or will be turned off shortly you know but look the rate of capital deployment in the State is really kind of to be determined. You know, we're experiencing, we experienced this kind of similar issue in Minnesota. And, you know, I'll tell you that it certainly had an impact on the market whereby just slowed down the rate of conversion from either hemp or the illegal market into kind of the state regulated side. So it might just prolong kind of the inevitable kind of, you know, consumer acceptance within the state due to the product shortage. I'll say for us, green film are really just focused on what we can control you know we've made you know pretty substantial investments into the state that really predates this year you know. We expected kind of adult use to really come to the state probably a little bit sooner than the next summer and so those are investments that we've paid and we're excited to kind of turn on the facilities and see what see what the team can do but it's really kind of it is a question that we're asking ourselves. We're going to try to play our part and do what we can, but our guess is that it could take anywhere from 12 to 24 to maybe 36 months before there's enough capacity in the state to kind of absorb the potential demand that we anticipate. Thanks, Anthony. That's a great segue into my following question with regard to Minnesota. So, you know, we're lapping adult use launch here heading into the fourth quarter, but your comments around the market dynamics at launch, Minnesota, the correct way to think about Minnesota would be that it remains a tailwind probably through at least the first quarter of 2027 and perhaps longer, just given some of the, as you call them, constraints or dislocation in the early days of standing up adult use. Would that be a reasonable characterization or how would you frame, you know, Minnesota's tailwind going forward? Yeah, I think, you Know, you really have to bifurcate the business. So on the retail side, you Now, there have been a number of stores that continue to open up and operationalize in the state. So that has certainly put pressure on our retail business. At the same time, you know, that's really where, you know, our wholesale business starts to play a larger role within the market. And that's what we've seen as we're heading into the early part of next year. You know, what we have not seen is the full impact from the outdoor harvest that have taken place recently with that product continuing to kind of, you know, be converted into mostly the myth categories that we see. And for us, look, it's all about a few simple things. Number one, we focus on our brands. We focus on the quality of our flour because that really, you know, is still kind of the tip of our spear from a competition standpoint. And so at this point, you Know, we're pretty excited about being able to supply these new stores with our brands, start to build that business in a meaningful manner, and really expand our reach across the state where, you know, up to this point, we've been kind of limited to the eight stores that we currently operate. So, we're excited about the future there, but I do think that the business will shift and become more wholesale-focused than retail-focused, as it has been in the last 12 months. That's great. Thank you. I'll get back into you. The next question comes from the line of Brenna Cunnington with ATB Cornmark Capital Market. Your line is now open. Hi. Thanks for taking our questions and congrats on the results. So looking into Q2 and 2027, just given the layering of seasonality with organic growth in certain states being offset by pricing pressures and some have already started to market, how should we be thinking about margins going forward to Q4 and to 2027? I'm sure I can take that. This is Matt. So, you know, with the pricing pressures, there's some pockets of stabilization, but there's still plenty of pockets of erosion that's out there. So it's hard to predict what it's going to look like going forward. We do expect some continued compression that is going to happen in the coming quarters. But one of the tailwinds that could be there is hemp and what role hemp is going to play or not play in the bigger picture. And we're just not sure how that's going to play out at this point in time. Okay, understood. And then the pace of GTI's retail expansion, it's seen quite the uptick in the past year. Could you just provide some color on what we should be thinking for retail expansions near term and which states might be focused? Yeah, Brenna, this is Anthony. So, yeah, look, we have some nice momentum here. We have a number of stores in Florida opening up between now and the end of the year, anywhere between three and five. And as we look ahead to next year, you know, the states where anticipate opening up additional stores Florida for sure you know I would say 10 plus there Ohio we have a select few number of stores that we still would like to operationalize so one or two there and then really Texas and Texas is the big unknown at this at this point I will tell you that we are putting the wheels in motion and getting the team ready to to really step on the gas there if we need to. So that's really the unknown that's difficult to predict, just given kind of the nascency of that market itself. But those are really the places where we're focusing our retail efforts as we look ahead to the next, call it, 12 to 16 months. Perfect. Thanks so much. I'll jump back in the queue. Your next question comes from the line of Pablo Zuanik with Zuanic & Associates. your line is now open thank you and good afternoon everyone ben you know based on the election yesterday does that have any impact on the rescheduling of rec in your opinion obviously there's no changing president same doj same dea someone would think there's no impact right i mean judge julius aside if you have a view on that and then the second question is more important in terms of the i know you said that up listing is not enough you need federal certainty on taxes, especially. But I could make the argument that even though you say that risk scheduling is not enough, TrueLib is benefiting from their uplisting and NYSE. More investors, institutions are owning the stock, it's going into various S&P indexes, and so on. So how long do you wait before you just decide to buy 4K the business and uplist the medical business? Thank you. Thanks, Pablo. Good questions. First one first, you know, the short answer is no view. You know, the judge is doing his thing. The stays have gotten shorter and it's due tomorrow, I believe. And we would think like everybody else, the consensus essentially that his recommendation will come out in the department of justice and Blanche will act quickly and promptly. I don't have any special insight on that. Obviously we believe it should be rescheduled. In terms of the second question, remind me what the second person was. uh uplifting oh the uplifting timing i mean look it's not a how long we wait before bifurcating the business which is what you said at the end which is a shorter answer which is we're not interested in bifurgating the business it creates a number of complications in terms of how we run the business in terms of people audit um so that's really we're not we're sitting in the wings waiting to do that at the moment so obviously we've evaluated we We spent a lot of time and energy on understanding what that would be. But at the same time, we need the clarity to have the right story and the right momentum into it for listing and figuring out the buyers. This industry has no buyers. There's no institutional investors circling. Nobody's asking any interesting questions. Nobody's really calling. And you've seen that happen to the multiple. And if listing and just the medical business produce the double multiple of where we are, you know, that wouldbe a catalyst to reevaluate the first part of what I said. But we haven't really seen that. We've seen four or five times, six times, even multiples on these businesses. So we're interested in maximizing value for shareholders, figuring out what that means and how to do it. And that'll be really the number one objective will be finding the right buyers for the company, given its earnings profile, cash flow, and future growth. And we think the future growth in these brands for the American consumer is massive. We got a teeny taste of it in the hemp where we could play without the handcuffs on in a way. And we know it works. Take a look at what's going on at Total Wine. Take a Look at what is happening at some of the nation's venues. And what is Happening to alcohol sales. And we Know THC has a real spot. And we are positioning ourselves to take advantage of that. When that happens. When what we list. And when TBD. And we also have obviously the significant strategic investment in Rhythm. Rhythm Inc. RYM. Listed on the NASDAQ. Owns the brands. And has a lot of optionality about how to play. So, you know, standing on the quicksand of the industry with the constant change, looking at our cash, watching what's out there, but not feeling in a rush that we need to do much, and especially not that split to return back to the adult use medical. Works great if you have a medical business and that's what you have, but for what we have and how we run it provides a lot of disruption for what мы understand today. Thank you. That's very good, Kohler, and all very clear. But, I mean, not to push back, but you don't think that Trulieve has a strategic advantage over you right now by being able to stay on the NYC? And the longer that it takes to get wrecked, rescheduled, the bigger the advantage for them, or do you disagree with that view? It's a different business. I mean a lot of respect for what she's built, a lot respect for whatever's happening in Florida and Georgia and Texas, but that is a different biz than what we have. And the multiple, as I look at it, I think, you know, we're trading roughly four to five, and she's roughly five to six. Another operator in the space has a much bigger multiple. It is puzzling in a different kind of way. But again, if a medical business traded 15 times EBITDA on the New York Stock Exchange, we'd be thinking about this very differently. We obviously are very flexible, and we can move very fast. We've met with all the exchanges. We're having all the conversations. We understand what's needed. it's a big leap on the audit to have two separate companies when you have one company. So you can't take that as just a, hey, we would deconsolidate and then we go. You can't run it in the same way if you're going to run it compliantly. And so that's a complicated venture if your business is what ours is. If it's 90% one thing, it's just a little bit easier. All right. Thank you. That's great, Conor. Thank You. Thank you Again, if you would like to ask a question, please press star 1 in your telephone keypad. And your next question comes from the line of Bill Kirk with Roth Capital. Your line is now open. Hey, this is Nick on for Bill. Thanks for taking the questions. First for me, just on the beverage side, have you seen any pantry loading or heightened sales or marketing activity ahead of the potential hemp ban? And has there been any notable changes in behavior at the retailer or distributor level get. Thank you. Yeah. Hey, Nick, it's Ben. I'll take it. Short answer is yes. A lot. Tons. The American consumer does not understand that this product is going away. And as they do, shelves are empty. Distributors are hesitant to restock because it's going to be out. Retailers want to sell a lot of it. And it's a pretty interesting situation. You're seeing a category that's 10 plus percent of sales in a liquor store going away, and so there's been a lot of chatter online and pantry stocking. We've got promotions going for large quantity purchases within rules and within regulations for people to pantry load or garage load. This is a product that has a real place in people's lives. And so moving consumers to the dispensary in the immediate, you know, the short term will be part of it. And yes, we've seen retailers act. We see distributors act for sure. Great. I appreciate that caller. Second for me, just on Pennsylvania, given the midterm results. Are you expecting an accelerated effort to get adult use stood up there? And are there any other states we haven't mentioned yet that excite you just after yesterday's results? Thank you. Sure. This is Anthony. I'll take that. You know, look, we're going to have to see. You know, we know that adult use has been historically held up in the state. The governor is certainly supportive. I think it's a little preliminary to start kind of, you know, thinking about kind of immediate next steps. We're going to have to digest as a group, huddle up with some of the other operators in the state, and kind of work together to figure out if there's a path here for adult use in the market. Great. That's it for me. Congrats on the quarter again. That concludes the question and answer session. I will now turn the call back over to Mr. Ben Kovler, Chairman and CEO, for closing remarks. Thanks, everybody, for joining us. We'll be back to you with the year-end results early in 2027, and it should be a pretty interesting 120 days until then. So, thank you. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.