Green Thumb Industries Inc. (GTII) Earnings Call Transcript & Summary

Good afternoon, and welcome to Green Thumb's Third Quarter 2022 Earnings Conference Call. As a reminder, a live audio web cast of the call is available on the Investor Relations section of Green Thumb's website and will be archived for replay. I'd like to remind everyone that today's call is being recorded. I will now turn the call over to Shannon Weaver, Director of Internal Communications. Please go ahead.

Thanks, Betsy. Good morning and welcome to Green Thumb's Third Quarter 2022 Earnings Call. I'm here today with Founder and CEO, Ben Kovler, and Chief Financial Officer, Anthony Georgiadis. Today's discussion 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 uncertainties are detailed in the earnings press release issued today, along with our reports filed with the United States Securities and Exchange Commission and Canadian Securities regulators, including the 2021 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 Thumb assumes no obligations 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 Thumb will refer to non-GAAP financial measures, including EBITDA and adjusted operating EBITDA. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is included in our earnings press release and SEC and SEDAR filing. Please note all financial information is provided in U.S. Dollars unless otherwise indicated. Thanks, everyone. And now, here's Ben.

Thank you, Shannon. Good afternoon, everyone, and thank you for joining our third quarter conference call. Green Thumb reported record revenue and adjusted operating EBITDA results even in the face of rising inflation and greater economic uncertainty. Revenue increased 12% year-over-year and 3% quarter-over-quarter to $261 million. We had positive GAAP net income for the ninth consecutive quarter. Adjusted operating EBITDA grew 7% sequentially to $84 million or 32% of revenue for the quarter and $230 million year-to-date. Finally, our cash flow from operations was $48 million for the quarter and $88 million year-to-date. We feel good about these results, and I think we are positioned to finish the year with solid performance. That said, no one has a crystal ball on when inflation will come under control and how much it will impact consumer spending, particularly in this new industry. Despite these challenges, consumer demand for legal cannabis remained healthy. While there is price compression in certain markets, unit growth increased 22% year-over-year according to PDSA. We believe this is a clear indicator that cannabis is an essential purchase for American consumers. As I said before, cannabis is a branded consumer packaged goods business and its growth continues to over-index other CPG categories like domestic beer, which declined 1% year-over-year. Green Thumb continues to build strong brand loyalty with products like RYTHM flower and Dogwalkers pre-rolls. Finally, we are operating in highly attractive states. We are seeing strong momentum in new adult-use markets like New Jersey and look forward to similar results in Rhode Island, which is expected to launch adults on December 1st and Connecticut, which should launch in the next 6 months. In addition, Green Thumb is well positioned in both Virginia and New York when those states come on line with adult use. Zooming out, the U.S. cannabis industry generated sales of over $6.6 billion in the third quarter, which equates to a run rate of over $26 billion. That is 3% growth year-over-year and 2% growth quarter-over-quarter for the industry. In contrast, Green Thumb grew 13% year-over-year and 3% quarter-over-quarter. Obviously, we are proud of that achievement, but we are focused on the future. We are laying the foundation for industry-leading growth as demonstrated by our disciplined capital spending, creative partnerships, and our commitment to good old hard work. The recent Biden executive order and potential passage of the SAFE Act, as Senator Schumer alluded to earlier this week, are positive news for the industry. We continue to operate with a healthy degree of skepticism that keeps us focused on protecting against downside risk, which just means staying focused on cash flow and our balance sheet. Even with all the noise in the marketplace, Green Thumb's cash actually grew in the third quarter. We paid all of our taxes, and we extended our debt agreement to April 30, 2025. We believe that worrying about the downside is equally important as planning for the upside and can actually create more value for stakeholders over time. Market demand for cannabis will continue to give us a runway of opportunity and our recently announced innovative partnership with Circle K, the global convenience store retailer is a prime example of that. As many of you know, Florida is an interesting and unique market for starters. It is the third largest cannabis market in the U.S. with annualized sales of over $2 billion in what is still a medical-only market. The other unique attribute about Florida is that there is no cap on the number of dispensaries that license holders may open. As we announced on October 19th, we plan to expand our medical retail footprint in Florida through leasing arrangements with Circle K. As the first phase of our test-and-learn roll out, subject to regulatory approvals, we plan to open approximately 10 RISE Xpress branded medical dispensaries. Through this exclusive agreement, Green Thumb can lease space adjacent to Circle K stores in Florida, where the retailer currently operates approximately 600 locations. The RISE Express stores will offer patients with a valid medical marijuana identification card, expand access to a selection of branded medical cannabis products, including RYTHM flower, Dogwalkers pre-rolls, incredibles, gummies and [indiscernible]. And while we've had a presence in Florida since 2018 and currently operate 7 medical dispensaries, we believe opening RISE Xpress can change the game. Convenience is a strong channel in retail and people, including medical cannabis patients want more convenient access to cannabis. The new RISE Xpress model is a huge step forward in normalizing cannabis through routine access. Now patients will be able to pick up a pack of Dogwalkers or incredibles in the same trip as they fill up their tank of gas. A lot of more thought and preparation went into making this agreement possible. For example, we are near completion of our new cultivation facility in Ocala, Florida, which will supply products for the Rise Express stores. So to comply with Florida's integrated supply and production regulations, it was critical to make this investment well in advance of expanding our retail footprint, so we have the product ready. Capital allocation decisions like this require long-range planning to position our company for future returns and value creation. Before I turn the call over to Anthony to review the financials, I want to address the recent departure of 3 Green Thumb Board members. Unfortunately, it was a situation where opinions diverged. And while we worked behind the scenes for quite a while to find a resolution, it became clear we could not find the common ground and those individuals elected to leave the company. I am grateful for all the guidance and insight we've received from our former directors. Fortunately, we have 2 new great Board members, Richard Drexler, a seasoned financial executive with a strong Board and audit experience and Jeff Goldman, who has operated in scale multiple branded CPG businesses. We look forward to benefiting from their considerable experience and fresh perspectives. We are excited to move forward with the team and Board who will understand the inherent challenges of operating it betterly in legal business and are committed to our goal of maximizing shareholder value. Finally, I want to emphasize that strong corporate governance remains a top priority for Green Thumb. We believe it is especially relevant to the important work we are doing day in and day out to assure our stakeholders that their company is in good hands and has a leadership team aligned with their interests. We continue to actively recruit new Board members in preparation for our potential U.S. listing. Now I'll turn the call over to Anthony to review the financials. Anthony?

Thanks, Ben, and good afternoon, everyone. As you just heard, the company posted solid financial results for the third quarter, generating $261 million of top line net revenue and $84 million in adjusted operating EBITDA. Total net revenue increased $7 million over the previous quarter as our gross CPG and retail revenue both grew by $7 million, which was offset by a corresponding $7 million increase in our company revenue. During the quarter, the company generated gross margins of 50.2%, an approximate 70 basis point improvement over Q2. While the company continued to battle price compression and inflationary pressure in many of its markets, increased wholesale production efficiency, aggressive procurement, good negotiating and retail verticality allowed the company to maintain its gross margins slightly above its internal 50% target. While we have started to see some relief in pricing compression across our market base, we continue to navigate a challenged supply chain and inflationary pressures on many of our cost inputs, particularly packaging and labor. On the SG&A side, excluding depreciation, amortization, onetime transaction costs and stock-based comp, normalized SG&A approximated $53 million, a $4 million decrease from Q2. This decrease was largely driven by various reductions made earlier in the year as well as a continued focus on closely monitoring corporate spend. Given the current macroeconomic uncertainty, the company intends to keep a close eye on its SG&A to balance short-term business profitability targets with its long-term strategic objectives. And to confirm, our 30% EBITDA margin target remains. Net of SG&A, along with $5.6 million in other expense, the company generated $10 million in net income or $0.04 per diluted share, our ninth consecutive quarter of positive earnings per share of the business. Turning to our balance sheet, the company ended the quarter with $147 million of cash, a slight increase over Q2. Our healthy cash balance is the result of a tremendous amount of hard work by our team. Strong operating performance, combined with the daily focus on managing our inventory levels, has created the one plus one equals 3 type of math our shareholders love. The company generated $48 million in operating cash flow in the third quarter and $88 million year-to-date, all the while paying Uncle Sam $31 million in cash taxes in Q3 and $95 million year-to-date. During Q3, the company invested $49 million in gross CapEx as we continue to make substantial capital investments in New York, Florida, New Jersey, Virginia and Minnesota. Year-to-date, we have invested $178 million in gross CapEx and remain bullish that our investments will drive meaningful cash-on-cash returns for our shareholders. As we look ahead to 2023, we anticipate continuing to allocate capital to certain markets while conservatively managing our balance sheet. In closing, as we head into the season of thanks, we can't say enough about our entire Green Thumb family and the magic they make happen every day. As a team, we continue to navigate a highly complex industry with ever-changing rules, aggressive competition, and an unpredictable economic environment. However, through hard work and dedication, we remain focused on our true door star, the consumer. We continue to think that above [indiscernible], our success will be defined by our ability to embrace our craft and create products, brands and retail experiences that resonate with the consumer. We hope everyone has a wonderful holiday season with their loved ones and look forward to speaking with you all in the new year. Back to you, Ben.

Thank you, Anthony. In closing, I am very optimistic about the future of the U.S. cannabis market, and I'm proud of Green Thumb's leadership position in the industry. Sure, there will always be some bumps in the road, but will be smarter and more resilient as a result. Our end game has always been to play the strength. And to us, that means staying true to our strategy and executing it to the best of our ability. It's very important to us that our investors and stakeholders know who we are and what we stand for. First, we have always resisted the exuberance of growth for growth's sake. With the looming recession, balance sheets are coming back into focus, and we are proud of our prudent approach to maintaining a strong one, which can fortify us in a downturn as well as give us the optionality to act on opportunity. Second, we believe in putting capital into markets that will generate strong returns over time. As I mentioned earlier, the Circle K partnership could not have happened without forward-looking capital investment, and that's what we will continue to do. Third, diversification helps. That's why we have built a diversified portfolio of states to provide some insulation from near-term volatility is happening in certain markets. Fourth, embrace your mission. We believe in expanding access to cannabis as a means to improve well-being. This quarter, RISE dispensaries served as a premier sponsor of HeadCount's Cannabis Voter Project to encourage holders to go up to the polls by registering informing voters who support cannabis policy reform. And while President Biden's recent executive order is a step in the right direction, there is still a big Capitol Hill to climb. We are proud to be part of this effort, and we will continue to do important work to support cannabis policy reform and restorative justice. And finally, we believe in our brands, we appreciate the flower, and we embrace our craft at every opportunity. With that, we'll open up the call for questions. Operator?

[Operator Instructions] The first question today comes from Vivien Azer with Cowen.

We got a lot of inbounds on your Circle K announcement, not surprisingly. So there are so many cannabis CEOs, in particular, in Canada have talked about the possibility of selling through [ CGAS ], and you guys are actualizing it through a very interesting partnership with Circle K. I recognize that a lot of this is probably competitively sensitive. But can you expand at all on like CapEx spend? What are you guys responsible for? Is Circle K responsible for anything? Are you paying them rent? Is there a revenue sharing involved? Just any incremental detail on kind of the financial relationship would be helpful.

Sure. Thanks, Vivien. It's Ben. Thank you for the question. Not much more we can say than what we've already said. I think it's a standard of landlord-tenant relationship, and we're paying rent -- and as with all rise dispensary locations in Florida, they -- this is a separate entrance. It's adjacent to the convenience store, the patients need to have valid ID with the state and are subject to sort of both normal regulations in the state of Florida. And that's about all we can say. We're pleased with the progressive thinking of the counter party here and I think this is where the momentum in the world is going, but it's a crawl-walk-run approach, and we're excited about what's ahead and look forward to 2023.

The next question comes from Spencer Hanus with Wolfe Research.

So I just wanted to focus on pricing for a minute. How are you thinking about industry pricing as we head into 4Q and then into next year? And then with the increasing constraints on capital that we're seeing across the industry, do you think we'll start to see more rational capacity expansions? Or do we still have to wait on that?

Spencer, Anthony here. I'll take that question. It's a great question. Look, I said in the prepared remarks, we started to see a slowdown in the price compression that we really started to experience earlier in the year. Where it goes from here, candidly, we don't have a crystal ball, it's anyone's guess. One of the things we like about our business is the diversified kind of approach to it, because we're not experiencing kind of the same level of compression across the entire market base. What 2023 looks like, candidly, just anyone's guess. In terms of the impact, the capital markets on essentially capacity and that corresponding impact on pricing, again, it's really difficult to say. This really comes down to a market-to-market kind of discussion. But obviously, with the capital market tightening that we've seen, that's less dollars available for CapEx, which really should show up over the next several, call it, 12 to 36 months. So TBD kind of what the true impact is. Again, it really just comes back to market to market. But we certainly think that the capital market challenges that we're experiencing today will show up within the business at some point in time.

The next question comes from Matt McGinley with Needham.

So with wholesale price compression and operators becoming more vertically integrated than many of your key wholesale markets. And I think having net wholesale revenue that was flat is definitely a solid result. Was that primarily New Jersey that was offsetting weakness in other markets? Or did something else help you in that wholesale segment in this quarter? And on the comments you made on the pricing, is that something that actually helped the third quarter? Is that more of a prospective comment that pricing is now looking to get second derivative positive and it's beginning to stabilize? Or I guess, is that something you actually flowed through your P&L and helped you in this quarter?

Matt, Anthony here. Another good question. So in terms of kind of what we experienced on the wholesale side of the business, New Jersey helped, but overall, this is quite a grind. I think the team did an excellent job at really taking advantage of all the opportunities that presented themselves within the market. But this was not just a New Jersey story. We -- we kind of mentioned during the prepared remarks, that was a $7 million kind of increase in gross and a flat kind of [ net ], but it wasn't all driven by one specific market. Your second question, do you mind just repeating it, just to make sure I've got it straight.

Yes. Just I want to make sure I understand what your comment around the pricing being a little bit better. Is that second derivative positive and that will look better or stabilize, I guess? Or are you saying that pricing actually had a positive impact on your either margin or top line in the third quarter?

It's -- I mean, look, pricing certainly [ did ] help kind of wholesale revenue in the quarter. The impact relative to Q2, I think that we experienced slightly less compression in Q3 over Q2, but this was really kind of a unit game. I mean we were able to drive the growth by producing and selling more units. We didn't experience a big benefit from even the slowdown in pricing that you just alluded to.

The next question comes from Eric Des Lauriers with Craig-Hallum Capital Group.

Congrats on the solid results here. Ben, you mentioned that worrying about the downside is just as important as preparing for the upside. I think that's incredibly prescient and that will become increasingly apparent here. Could you just expand on that comment a bit? Maybe give us some examples of how you've implemented that in the past and then perhaps how that philosophy is informing some of your CapEx decisions today?

Sure. Thanks, Eric. Appreciate the question. [indiscernible] we're paranoid, we're worried. And so instead of just constantly thinking the glass is half full, although we're an optimistic people, and we like to be upside, we're prepared for the worst. And so it's come up all over the place. It's come up in our M&A strategy. It's come up and where we've expanded to. We've come up and keeping a healthy amount of cash, not getting too much debt. We can't bank on what we don't know and especially what we don't control. So the start of any particular market is always late and it takes too long and costs more than you think. And so we just -- it's hard to bet everything on the come. The biggest thing we have confidence in is the demand on the product. We sleep incredibly well on that. We just kind of focus on that and worry about everything else that could go wrong because it's not that. We tend to do okay. We make the products that everybody likes. We make brands that have simple stories that create an honest relationship. We're going to win. And then we've got to be ahead of the distribution. We've got to be ahead of several other things, but I think we're always worried about what can go wrong. I think we say expect the unexpected. I think we think about invert the problem or what would you not do? Those are kind of inverted questions we often [ ask you that ], I think generates edge in how we analyze problems because this is a unique game. It's a unique market with 30 different states and a complex federal environment in which it's hard to [ handicap ] what's happening out of D.C. So hope for the best, prepare for the worst and hope really isn't the strategy. So hopefully, that helps a little bit.

The next question comes from Aaron Grey with Alliance Global Partners.

So I wanted to hear a little bit more on the verticalization. You spoke a little bit on the progress there in terms of selling into your own store. I just want to know how much of an impact do you say there might have been on third-party wholesale business looked pretty strong. You spoke to some of the unit growth that you saw. So do you feel more comfortable where your own brands stand today within your store? Do you feel there might be some more room to go in terms of verticalization? And then how do you feel like it is for some of the broader participants in the market outside of yourselves?

I'll take that one. Another good question. So I mean look, we say a lot of things around here. One of which is the brands need to be able to stand on their own 2 feet. The concept of being able to move your own goods through your own retail, you can do that for a period of time. But over time, the consumer will either stop showing up or gravitate towards the other products, if there's not real value differentiation. So fortunately, what we've seen across our store base is that our brands are able to kind of perform pound for pound against the other products out there. And so that's one of the things we're just excessively kind of focused on. Whether or not we continue to kind of lean in on the verticality, I mean part of it is we just have to take what opportunities are given to us. So every market is different. The supply-demand dynamics within those markets are materially different. And so as opposed to us then can kind of top down, how do we optimize, it's really bottoms up on a market-to-market kind of basis. So I hope that kind of answers the question. But again, it really just comes down to a market-to-market kind of game. And we just optimize our position within each respective market.

The next question comes from Andrew Bond with Jefferies.

Andrew Bond on the line for Owen Bennett. So maybe stepping back from quarterly delivery for a moment, I wanted to get your thoughts on uplisting. So specifically, your thoughts on the recent actions taken by Canopy to consolidate their U.S. plant touching operations through a ring-fenced structure and this appearing to be permissible by the Toronto Stock Exchange based on recent comments from TSX officials. So if this is the case, and this is permissible, would Green Thumb explore a similar structure to be able to uplist to the TSX. Just very interested to hear what your thoughts might be puts and takes around these recent developments and what this might mean for uplifting potential for MSOs?

Yes. Thanks, Andrew. It's Ben here. Good question on a topic that I think has been on everybody's mind, and I'll speak to it. I think a direct listing has been on our mind for several years. I think we zoom out back up -- we're the first or one of the early companies registered with the SEC filed an S-1 to GAAP financials and stay compliant there. We're focused on building the best business in the current landscape and assume that eventually, we'll be able to list directly on a U.S. exchange. We continue to study the structural changes that are out there understand what's happening in sort of different kinds of ways. But I would say listing in the U.S. remains an objective of ours. We have a duly prioritization in order to make that happen, and we're focused on checking those boxes. I don't think it's likely for us to explore very creative legal structures in order to sort of get somewhere, but we're always open to new ideas. We are looking and studying, but our North Star remains sort of what I said. And I believe a direct U.S. listing is in the future. So that's what we're planning for.

Next question comes from Pablo Zuanic with Cantor Fitzgerald.

Anthony, can you talk about the drivers for the fourth quarter, particularly in terms of new capacity that will be coming through in October, November, December in key states, I mean, you talked about the CapEx. And the same thing, if you can give color in terms of any new stores in the fourth quarter. And Ben, I know it's only just one question, but thank you for the color regarding the resignation of 3 Board members. I mean the press release talked about this agreement as to the company's policies and practices related to personal misconduct. I have to say that that's not very common, right? You were seeing that one thing that everyone agrees on, it's what construes personal misconduct. So I don't know if you can give some color on that, Ben. But Anthony, if you can answer my question first.

Sure. So Pablo, good question. We don't have much juice in the fourth quarter in terms of new stores and new facilities coming online. The only thing that could potentially pop up is Rhode Island going live with adult use. We think December 1st is kind of the target date there. But other than that, most of the capacity expansion that we've completed is really going to start to show up in the early part of next year and then throughout the balance in 2023. So not a lot of tailwind that we've got within the business at the moment.

Pablo, this is Ben. On your second question, so thanks for asking. I'm glad you did. So what I can say is the former directors gave the reasons publicly in the resignation letter. And it's tough for me to really expand on that. I think like we stated the reasons had nothing to do, and it's important to emphasize, nothing to do with the company's business performance, our operations, financial performance, nothing about the financial statements or even the financial controls. What I can say [indiscernible] as you know, cannabis is a tough and very unique industry says [indiscernible] and nothing in cannabis is particularly common. And every day, we manage risks relating to operating in a federally in a legal space, and it's not for everyone. From my perspective, former directors and management were fundamentally not aligned really on some of the core aspects of our industry. And as you know, having an aligned management and Board remains fundamental. So I do want to say I appreciate the experience and insights they brought to their tenure, but the business and we're focused on moving forward. And finally, as really, I said in my prepared remarks and as the prior question, strong corporate governance remains a top priority. We continue to actively recruit new Board members in preparation for our potential U.S. listing. The next question comes from Andrew Partheniou with Stifel.

Congrats on the quarter and congrats as well on the [indiscernible] agreement. Maybe just continuing on the latter, if you could I'm wondering if you could talk about how this deal really came to be? How long have you been working on it? Why did [indiscernible] choose GTI in Florida, in particular, versus any other operator jurisdiction? And if there's any other kind of collaboration that we could see between both companies seeing as convenience is a common aspect in both businesses.

Sure. Thanks, Andrew. It's Ben. I'll take that. I'll share what I can. And certainly, I can't speak for [indiscernible], so I can speak for us and me and our strategy and how we've thought about it. We've been planning and strategizing how cannabis is going to be more easily accessible for everyday American consumers across the country in their everyday life. We've been banging the drum that this is a means to well-being and thinking like the American consumer, we said it, I think, in every conference call. That leads us down a path like this. It leads us to a counter party that's progressive and how they've thought about it. This is not their first foray into cannabis. They've done an arrangement with [indiscernible] flower. We've seen that. But it takes a while to do any kind of arrangement partnership, landlord, tenant, anything in cannabis as you've seen across the spectrum, across the supply chain. And so we're very excited about what we have here. We're very aligned with the test and learn phase of 10 or a dozen stores coming in 2023. We're head down and executing that and making sure we get that right so that when those are ready and when those are inspected, they're approved and we open and we get going. That's the arrangement there. No more comment on what we would do with them or anything like that. I just think what you'll see from Green Thumb is continued thinking like the consumer, to continue to drive a better experience. And for us, then those answers emerge as more common sense, similar to how we think this will look over time.

The next question comes from Michael Lavery with Piper Sandler.

I just wanted to see if you could unpack the 22% volume lift. And maybe just -- and some of this, I'm sure it's hard to measure. But is it driven primarily by share gains from [ illicit ] trade? Is the price compression at least helping in terms of penetrating with those consumers? Are you seeing increases per consumer? Is it particulate or traffic? Just how much can you kind of understand the drivers of what's really behind all that?

Good question, Mike. This is Ben. I'll start there, maybe Anthony will jump in. The 22% unit growth you're referring to, I think, is what I said in my prepared remarks is the BDSA industry data, not a Green Thumb stat, right, jump in [indiscernible] -- and so what we take from that really, like I said, is the American consumers use cannabis as essential to their well-being and it has a real viable share of market. We talked about being recession-resistant. I think that holds true. So to your question on what insights do we see in consumer trends along those lines, -- it doesn't seem that while for us, it makes a lot of sense. I think it's been talked about a lot that instead of buying a lot of premium [ ads ]. You might buy a lower price value half to get [indiscernible] for a little bit less dollars, but continue to get the positive experience from the product because it's not going to leave your daily life. And so as we begin to understand an 80-20 consumer base and understand those form factors, we have a lot of confidence in what's happening in the [ whole of the whole ] 22% unit growth. So I think you also [ peel that back ] a little, where are you seeing it there's a combination of a lot of things. I don't think individual consumption is up 22% in standalone. You have new states coming on, you have massive growth in certain markets, New Jersey and others that are growing. But as you unpack those state of the states and look at what's happening in there, I believe that consumption is not going down, share gain from [ legal ], new markets coming on and better experience for the consumer, leading to repurchases, ingrained position in their lives. And as we bring convenience and on-prem and make this easier for American consumers, we think growth is in store.

Your next question comes from Scott Fortune with ROTH Capital.

Real quick, I want to talk about New York market, but I just want to follow up on the U.S. exchanges and potential up listing there. Are you seeing -- what's kind of the pathway to up listings? Are you seeing more discussions than you have in the past? And what's the concern of the exchanges to overcome, right, with potentially says Cole Memo or the FinCEN or AML guideline changes there? And then I just want to talk about New York market, kind of the timing and expectations of that with the new regulations coming out, kind of optimizing the New York market for TGI in the future? Is this becoming more like a California market? What were there's going to be a thriving illicit market establish a slow retail roll out there? Just kind of your sense on that, that would be helpful.

Sure. Thanks, Scott. A couple of good questions. On listing, I think every day, you get a little closer. I think you saw Senator Schumer's comments this week, we saw [indiscernible]. This is a growth industry in the United States. This is an economic stimulus package that hits communities that need jobs, needing tax revenue, and it's also bringing a lot of well-being. We talked about the opioids. We talked about sleep and other sorts of things. So for us, it makes a lot of sense. How this actually happens to what's in the detail, a little bit unclear. But the other strong force that's happening here is the need for capital access, especially for new entrants to the industry at non paralyzing rates, especially in a rising rate environment. There must be access to capital or there is no industry and there particularly is no newcomers. Some of us can produce capital and our capital -- and we've created a machine here, but in order to stimulate new entrants, which is something we're very positive about on the cost of interest go down, access to capital has to happen. And listing is a part of that, as we engage in the U.S. banking [ fiscal small ] business loans and favorable sort of structures to stimulate investment. So all that is part of the same story. And the phrase we were same plus something like that. There's action. Obviously, next week's election is important, and we'll see what the table looks like towards the end of the year. On New York, we're head down execute. There is a lot of noise, but there's 20 million people in the state who are going to want to consume a lot of premium indoor RYTHM flower. And we're very focused on what we're doing and controlling what we can control. So we're building a world-class facility in [indiscernible]. We love the community. We love the employees. We're excited. We're looking forward to sort of doing that, waiting for clarity from the regulators. It's a confusing situation out there. We're trying to be an asset and have constructive conversation about how the rules, how the timing and how the structure will work. I think it's a little ahead to say, New York will be California and there we are. Keep in mind, California passed Medical in 1996, 25 years later, there's a lot of issues, okay. And New York just licensed all the hemp growers. We have a lot going on. We saw some interesting news yesterday on testing requirements or lack thereof. There's going to be a lot of learning as we go. Fortunately for us and our shareholders, we have a lot of experience making cannabis facilities, building high-quality products and getting this going. So that's our playbook. We think it starts in 2023. If I had to bet, I would say the second half of 2023 in real size, though state aid a store will open sooner. And I think it will be a unique path, not a day 1 like everywhere else, but for Green Thumb, head down and execute. We produce high-quality flower and roll a lot of Dogwalkers. We think consumption of the state is going to be strong, and we're going to get the return on invested capital that we planned. So we're pumped about '23 in New York.

The next question comes from Sonny Randhawa with Seaport Research Partners.

I was hoping you guys could give me some color on Virginia and Minnesota. How is Virginia tracking in terms of new patient growth with the new requirements that I think you have a full quarter of as of Q3. And in Minnesota, I think we also saw a pretty decent ramp in new patient growth for Q3. Is that directly related to the edibles or just, I guess, some additional color on both those markets and how they're ramping relative to some other medical markets as they were ramping?

Yes, Sonny, Anthony here. Some good questions. Look, obviously, we're very bullish on both markets. Virginia specifically, sure, when the adjustments roll through in terms of how patients can get access, we definitely saw a bump. And at this point, we're seeing a nice, steady climb on a monthly basis. It's obviously starting at a much smaller base, so it's going to take some time to build. We kind of tell the team, this looks like Illinois, Pennsylvania, some of the earlier kind of medical markets when they first kind of got their initial lift. But I'll tell you that we're pretty excited about what's going on there. We've got our -- another facility under construction that should operationalize in the second half of next year. And so -- and in addition to that, we still have 2 more stores that we're working hard to open up, which should happen in the first half of next year. In Minnesota, a similar story. The animal legislation for regulations that certainly did allow for an immediate kind of pickup from the consumer. Again, that's another market where we're seeing nice steady kind of month-over-month growth. The reality is there is that we're working hard to also open up. We've got 2 additional stores, we're trying to open up. We have a large expansion that's currently kind of taking place that should operationalize in the second half of the year. And again, it's one of those medical markets where we've essentially seen a move before or we can point to other markets and look at the growth trajectory and just where they are from -- based off of when the programs effectively start in terms of timing. So big plan for '23 in both states, and we really think the best is yet to come in both Virginia and Minnesota.

I'm sorry, just to follow up on Minnesota, -- are those 2 new stores going to be in the, I guess, the Twin Cities area, I think 54% of the new patients or total patients are in that market, and you only have 2 stores.

Yes. So Minnesota has a unique way of kind of breaking down the jurisdictions. But that's absolutely right. The 2 stores that we still have to open are in highly dense populated areas. And so that's why we're working -- the team is working pretty hard to get those open.

The next question comes from Matt Bottomley with Canaccord Genuity.

Congrats on the strong quarter. Just on the slight expansion in the adjusted EBITDA margin. This might be housekeeping, but I'm just wondering more on a sequential basis, so you had talked on an adjusted basis that SG&A had declined. But it looks like on the face of the consolidated number, there was a pretty sizable bump in SG&A. So I'm just curious if there's a non cash element to that to consider or if it's just transactional or things that are nonrecurring. And then just a quick follow-up to what Pablo had asked about just on the Board resignations there, not to press the issue, but I know you guys were very thoughtful on how you mentioned it's a difference of opinion. It's nonoperational. And then, Ben, I think you had alluded to some differences between how there's the federal schedule 1 element to this industry, which impacts all operators. That does sound more operational to me, although albeit it impacts every MSO and every legal state operator versus personal misconduct. So I just sort of putting it back to you guys if there's any other commentary. And I'm only really asking because it's clearly a topic that we're -- I'm sure all analysts are getting a lot of inbounds on.

Matt, Anthony here. So good question. Let's zoom out for a minute. So let's start with kind of the GAAP SG&A figures. In the second quarter, we had -- there were some effectively some noncash fair value remeasurements, about $15 million that was onetime that [ effectively ] brought that SG&A number down. right? So that's why if you look at -- if you just look at even in the press release, you're looking at 63.5% growing to 82.5%. The reality is that the 63.5% was if you normalize that and add back the $15 million noncash that related to some fair value remeasurement that number is much closer to the kind of the GAAP number that we saw in the third quarter. Internally, we look at normalized cash-based SG&A. That strips out depreciation and amortization, that strips out stock-based comp and then you've got some of the add-backs as well. And so that was the number, candidly, that we were one of the most excited about for the quarter. We had kind of a normalized SG&A of $57 million in the second quarter and $53 million in the third quarter. And again, that was really driven by effectively some of the timing that we did earlier this year that really has now started to show up within the P&L. As it relates to the -- to your second question, I'll just tell you that at this point, we have no further commentary than what we said. We can't speak for the former directors. We understand that you all continue to get some inbound calls, but we've been pretty direct as far as what we can and can't say here, and we'll stand by that.

This concludes our question-and-answer session. I would like to turn the conference back over to Ben Kovler for any closing remarks.

Sure. Thanks, Betsy. Thanks for joining us, everybody. I will be back to you in late February, early March with the annual numbers. I wish everybody a safe and healthy holiday season, and talk to you soon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.