Rescheduling Would Have Saved Verano $80M in 2023 Tax Payments, CEO Says

CHICAGO, May 8, 2024 – PRESS RELEASE – Verano Holdings Corp., a leading multistate cannabis company, announced its financial results for the first quarter ended March 31, 2024, which were prepared in accordance with U.S. Generally Accepted Accounting Principles GAAP).

First Quarter 2024 Financial Highlights

• Revenue of $221 million, a decrease of 3% year-over-year, and a decrease of 7% versus the prior quarter, exceeding company guidance.
• Gross profit of $113 million or 51% of revenue.
• SG&A expense of $90 million or 41% of revenue.
• Net loss of $(5) million or (2)% of revenue.
• Adjusted EBITDA¹ of $67 million or 30% of revenue.
• Net cash provided by operating activities of $31 million.
• Free Cash Flow² of $21 million.
• Capital expenditures of $10 million.

Management Commentary
“I am tremendously proud of the strong foundation we’ve built in the first quarter, which positions Verano to capitalize on what may be one of the most transformative years for legal cannabis in our nation's history,” Verano founder and CEO George Archos said. “While we’ve never built our business based on legislative assumptions, we have tremendous upside across all of our markets to take advantage of the massive potential catalysts that lie ahead in 2024. With adult use imminent in Ohio, confirmed on the November ballot in Florida, and on the horizon in Pennsylvania, we have significant opportunities in these core Verano markets where we currently operate nearly 100 retail dispensaries alone. If fully approved, layering on DEA rescheduling would have also enabled us to save an estimated $80 million in tax payments in 2023, allowing us to reinvest back into the business, and take swift action towards listing on a U.S. exchange if permitted.”

Archos added: “With the growing strength of our wholesale business in key markets, disruptive innovation demonstrated by our launch of the nation’s first dispensary membership model in Cabbage Club, state and federal catalysts on the horizon, and our team’s proven operational experience and agility converting medical to adult-use markets throughout our history, I remain confident and excited in what Verano can achieve in 2024 and beyond.”

First Quarter 2024 Financial Overview

Revenue for the first quarter 2024 was $221 million, down 3% from $227 million for the first quarter 2023, and down 7% from $237 million for the fourth quarter 2023. The decrease in revenue for the first quarter 2024 compared to the first quarter 2023 was driven primarily by expected declines in New Jersey retail as dispensaries continue to open across the state, which was partially offset by stronger-than-expected performance from the wholesale segment.

Gross profit for the first quarter 2024 was $113 million or 51% of revenue, up from $109 million or 48% of revenue for the first quarter 2023, and down from $118 million or 50% of revenue for the fourth quarter 2023. The increase in gross profit for the first quarter 2024 compared to the first quarter 2023 was driven primarily by higher third-party wholesale sales.

SG&A expense for the first quarter 2024 was $90 million or 41% of revenue, up from $75 million or 33% of revenue for the first quarter 2023, and up from $86 million or 36% of revenue for the fourth quarter 2023. The increase in SG&A expense for the first quarter 2024 compared to the first quarter 2023 was driven primarily by new dispensary openings in addition to investments in people, processes and technology.

Net loss for the first quarter 2024 was $(5) million, or (2)% of revenue, versus $(9) million, or (4)% of revenue in the first quarter 2023. The decrease in net loss for the first quarter 2024 compared to the first quarter 2023 was due to a decrease in provision for income tax expense versus the prior year period.

Adjusted EBITDA¹ for the first quarter 2024 was $67 million or 30% of revenue.

Net cash provided by operating activities for the first quarter 2024 was $31 million, up from $17 million for the first quarter 2023.

Capital expenditures for the first quarter 2024 were $10 million, up from $9 million for the first quarter 2023.

Free cash flow² for the first quarter 2024 was $21 million, up from $8 million for the first quarter 2023.

2024 Guidance
The company issued sequential flat to low single-digit revenue growth guidance for the second quarter 2024.

First Quarter 2024 Operational Highlights

• Expanded the company's retail footprint by opening the following new dispensaries:
• MÜV Yulee, raising the company's total Florida footprint to 74 statewide locations;
• and in Pennsylvania, Zen Leaf Abington, Verano's largest dispensary nationwide by square footage in a prime new location, along with Zen Leaf Norristown, the company's 18th affiliated Pennsylvania dispensary.
• Launched Cabbage Club, the first nationwide proprietary multistate cannabis membership club, offering consumers the opportunity to join to unlock exclusive benefits, in two of the nation's largest cannabis markets—Illinois and New Jersey—with plans to further scale across the company's footprint in 2024.

Subsequent Operational Highlights

• Joined the Smart and Safe Florida coalition of industry stakeholders advocating for the passage of the Amendment 3 adult-use ballot initiative this November.
• Strengthened Connecticut retail footprint with the opening of Zen Leaf Naugatuck, the company’s third social equity joint venture location and fifth dispensary statewide.
• Current operations span 13 states, comprised of 139 dispensaries and 14 production facilities with more than 1 million square feet of cultivation capacity.

Balance Sheet and Liquidity

As of March 31, 2024, the company’s current assets were $419 million, including cash and cash equivalents of $194 million. The company had working capital of $4 million and total debt, net of issuance costs, of $445 million.

Subsequent to the quarter end, the company prepaid $50 million of its senior credit facility, decreasing the principal balance to $300 million, and retaining optionality to further decrease the principal balance in the future.

The company’s total Class A subordinate voting shares outstanding was 344,163,149 as of March 31, 2024.

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¹Adjusted 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 directly comparable U.S. GAAP financial measure to adjusted EBITDA is net income (loss). The reconciliation of adjusted EBITDA to U.S. GAAP net income (loss) is set forth below in the tables included in this news release.
² Free cash flow is a non-U.S. GAAP 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, 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 net cash provided by operating activities is set forth below in the tables included in this news release.

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 to 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, 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. The calculations of the non-U.S. GAAP financial measures used in this news release and the reconciliations to the most comparable U.S. GAAP financial numbers are included in the tables below.

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.