Green Thumb Industries Inc. ($GTII)

Good day, and thank you for standing by. Welcome to the Green Thumb Industries First Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Shay Caplice. Please proceed.

Thank you, Kevin. Good afternoon, and welcome to Green Thumb's First Quarter 2026 Earnings Call. I'm here today with Founder and CEO, Ben Kovler; President, Anthony Georgiadis; 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 uncertainties 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 Thumb 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 Thumb will refer to non-GAAP financial measures, including EBITDA, normalized EBITDA, and adjusted 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+ 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, Shay. Good afternoon, everyone, and thank you for joining our first quarter 2026 conference call. We are glad to be back today, and it's pretty good timing. In April, we published our 2025 Green Thumb annual report, including our letter to shareholders, which was centered around the theme that chance favors only the prepared mind. Over the last few weeks, we have seen that play out in real time. We have built Green Thumb to be prepared, to listen to the consumer, and to act with discipline when opportunities arise. For those of you who might be new to the Green Thumb story, this is how Green Thumb has operated since the beginning, protecting the balance sheet, staying disciplined and building trusted quality brands that resonate with the consumer, including Rythm, Dogwalkers, Incredibles, Beboe, good Dream, An Shine and Dr. Solomon. We focus on execution while letting our actions speak, rather than chest-pounding or making empty promises. But our best asset, which is not even on the balance sheet, is our people. We are a people-first organization, and our team of nearly 5,000 dedicated professionals is the best in the business. Over the years, we have made meaningful investments in our dispensaries, production capabilities, and infrastructure. And today, our retail footprint spans 14 markets and 114 stores. We have built a business that generates cash, withstands pressure, and delivers well-being to millions of Americans every year through our RISE dispensaries and leading brands. Green Thumb started 2026 with a strong first quarter, building on the momentum we carried out of 2025. First quarter revenue was $300 million, up 7.5% from the prior year period compared to approximately a 1% decline in the broader industry. Normalized EBITDA was $93.5 million, or 31.2% of revenue. Cash flow from operations was $76 million, and we ended the quarter with a record for Green Thumb of over $344 million in cash on the balance sheet. In addition, we spent about $80 million buying back about 13.4 million shares so far this year. We are pleased with these results, especially in a constrained environment and during a quarter typically affected by seasonal declines. The headline here remains the same. Green Thumb continues to execute well. As THC demand continues to rise, consumers are becoming more sophisticated about the category. They know what they like, they know what works, and they are coming back into the brands they trust. That is where Green Thumb continues to win. According to BDSA, which is the nation's leading data source for the cannabis industry, our product led key categories in 2025 and continues to lead in 2026. RYTH is the #1 flower brand nationally. Rythm's animal base is the #1 flower SKU nationally, and Dogwalkers is the #1 uninfused pre-roll in the United States. Our products are reaching consumers across categories, price points, and occasions. And that brand strength is real. It gives us durability and reinforces what we have always believed, which is that quality products, trusted brands, and consistent execution win with consumers. As we look beyond Q1, there are 4 key areas to know about Green Thumb, and we believe each positions us to drive long-term value. These are future growth, disciplined capital allocation, our strategic investment in Rhythm Inc., and federal rescheduling. First, let's talk about the state growth opportunities. On April 1, Green Thumb was conditionally awarded a license to operate in the state of Texas. We are watching the state closely to determine the right approach. And while operations will still be a few years out, the license gives us a meaningful opportunity in the nation's second most populated state. We have a history of winning when we enter markets this way, and we think Texas will be no different for Green Thumb shareholders. We foresee growth in Pennsylvania, Minnesota, and Virginia, each for different reasons, and Anthony will talk through those shortly. For both medical and adult-use markets, we have capital in the right places, and we believe we are set up for success and growth as these markets develop. The second key area for us is disciplined capital allocation. We have a history of prudent capital allocation, and that's resulted in the strong balance sheet we have today that, as I said, has over $300 million of cash and less than $200 million of debt. That balance sheet gives us flexibility, which we believe is a significant advantage in this industry. In April, our Board authorized an additional $100 million for our share repurchase program, bringing the total authorization to $150 million. Since initiating our share repurchase program at the end of 2023, we have repurchased approximately 29 million shares for roughly $200 million, which is equivalent to about 12% or 13% of the company, meaning all of us own a larger piece, 12% or 13% larger to be exact, of the Green Thumb pie. On the M&A front, we've had a history of creating value and not overreaching. The current environment has us cautious. So while we are not looking for transformational deals, we remain open to the right opportunities. The industry is capital constrained, and we have cash. So we are listening and evaluating opportunities that come our way. As always, we will stay disciplined and focus on deals that make strategic sense and strengthen our position. Our third area is Rhythm Inc. Green Thumb is a significant shareholder of Rhythm Inc., which is a NASDAQ-listed company. We view Rhythm as a strategic asset. Rythm owns the brand intellectual property for the products Green Thumb manufactures and sells, including Rhythm, Incredibles, dog walkers, and Beboe. Rythm and Green Thumb have a licensing structure in place to utilize the brand IP in state-regulated markets, and we believe that structure gives Green Thumb a noteworthy advantage and future optionality. Rhythm benefits from predictable licensing revenue tied to its brand IP as well as a growing beverage business that includes Seniorita THC margaritas, Rhythm Beverages and its first nonalcoholic THC spirit, 1777 by Seniorita, which just launched last week. Even as a potential federal hemp ban looms, Rythm's beverage business continues to reflect strong consumer demand for THC. Americans want safe, trusted THC in accessible locations. Rythm is bringing that to life through distribution in convenience and grocery stores like Circle K and Target, and through partnerships with arenas and venues like Chicago's United Center. And finally, federal rescheduling. As medical represents approximately 50% of our business, we are encouraged by the recent movement in the rescheduling process, which moved medical cannabis from Schedule 1 to Schedule II of the Controlled Substances Act. For the first time in more than 55 years, the federal government took a meaningful and positive step by formally recognizing the medical value of cannabis, something our team, patients, and clinicians all over the country have known for years. The rescheduling process created a pathway for Green Thumb to submit applications to register with the DEA for certain state-licensed medical cannabis operations. We submitted last week, and we will continue to monitor for additional guidance. While rescheduling is not legalization, it is a significant and welcome step in the right direction, and we are hopeful the rest of cannabis will be rescheduled later this year. We believe the federal change that started this year marks the beginning of a broader reform and normalization for this industry. Fortunately, our preparation has positioned Green Thumb well for what comes next. Before I close, I want to remind everyone that our Green Thumb Annual Shareholder Meeting is coming up on June 16. If anyone happens to be in Chicago, we will have a live reception at Garcia in the West Loop following the meeting at 3:30 p.m. Central, and we would love to see you there. Now I'll turn the call over to Anthony.

Thanks, Ben. As you just heard, the team delivered an exceptionally strong first quarter, generating $300 million of revenue and $94 million in normalized EBITDA, representing 7% year-over-year top-line growth. While the quarter was anchored by strong results in Minnesota, we saw solid operating performance across a number of key markets, including Ohio, Maryland, Virginia, Illinois, New York, and New Jersey. Let me walk through some of the highlights from the quarter and share where we're focused for the balance of the year. First, CapEx. We invested $19 million in capital during Q1. Retail CapEx includes store relocations and development in Pennsylvania, Ohio, and Florida. On the wholesale side, we made a variety of infrastructure investments focused on capacity expansion and automation. Consistent with last year, we anticipate full-year CapEx to approximate $80 million, but that figure could shift depending on Virginia's adult-use legislation. Second, CPG market share. As discussed on previous calls, we continue to lean into key markets and product verticals where we see opportunity. Since last year, we've grown our CPG market share in essentially every market. Most notable are the share gains in Illinois, Pennsylvania, Ohio, Maryland, and Minnesota, where we have taken the #1 share position in each state. While RythmFlower continues to act as the tip of our spear, our team, patients, and consumers understand the meaning of fire in, fire out. Third, adult-use opportunities. We remain focused on optimizing our adult-use opportunities in Minnesota, Pennsylvania, and Virginia. Despite strong performance in Minnesota, which launched its adult-use program in September of last year, the market itself remains supply-constrained. Unfortunately, the current regulatory structure is artificially limiting our ability to get additional supply into the adult-use market. We are hopeful that we can resolve some of these issues before year-end. In Virginia, we remain active in working with legislators in GugerSanburger on an adult-use bill. After 2 consecutive gubernatorial vetoes, we're hopeful this is the year that the Commonwealth finally gets it done. In Pennsylvania, despite broad bipartisan recognition of the positive economic impact adult-use would have, the path to getting the bill over the finish line by the end of 2026 remains murky. We continue to push. Last, 2026 outlook. Overall, we remain cautiously optimistic about the near-term outlook for our business and the broader industry. We continue to navigate the following headwinds: price compression, largely driven by oversupply and increased competition; consumer discretionary spending pressure from years of elevated inflation and current high gas prices; and regulatory uncertainty, particularly around the closure of the Farm Hill loophole, making it difficult to allocate capital with a long-term lens. In response to these pressures, we're doubling down on the fundamentals, operational discipline, brand strength, scale, and a strong balance sheet. THC demand is growing globally with new product formats and channels rapidly emerging. With millions of people turning to THC to enhance their daily lives and support their wellness journey, our strategy is simple, put the consumer at the center of everything we do. Before I hand it over to Matt, a few words on what's coming this summer. Consistent with previous years, we're bringing back the Rhythm Bud Ball series. Bud Ball has become one of our favorite ways to celebrate the cannabis community, bringing together music, culture, cannabis, and the Rhythm lifestyle. This summer's lineup includes New York on June 10, Chicago on July 15, and Philadelphia on August 26. The headliners for all 3 are something else, and we hope to see you there. In closing, a huge thank you to our entire Green Thumb team. We experienced our best Q1 on record, and Q2 is off to a strong start with an incredible 420. None of this happens without the best team in the business. To those out there listening, the mission continues. Today is still day 1 for all of us. With that, I'll turn the call over to Matt to walk through our financial results.

Thanks, Anthony, and hello, everyone. As Ben and Anthony outlined, we had another strong quarter to start 2026. From a top-line perspective, revenue increased 7% year-over-year, driven in large part due to adult-use sales launch in Minnesota, along with net CPG growth and new store contributions. Pricing pressures continue to weigh on the top line even as we see solid demand. Looking forward, we expect second-quarter sequential revenue to be flat to down slightly due to the pricing environment. Gross profit for the first quarter was $144 million, or 48% of revenue, compared to $143 million, or 51% of revenue, year-over-year. The decrease in gross margin was primarily driven by licensing fees incurred in the current period. Turning to OpEx. Selling, general, and administrative expenses for the first quarter were $103 million, or 34% of revenue, compared to $101 million, or 36% of revenue, for the first quarter last year. The increase in total expenses was primarily attributable to overall compensation costs, along with increased costs associated with the opening, acquisition, and operation of retail stores. SG&A, excluding depreciation, amortization, one-time transaction costs, and stock-based comp, which we refer to as normalized operating costs, approximated $73 million compared to $69 million in the first quarter of last year. The increase year-over-year is mainly attributed to the 11 incremental retail stores. Our normalized EBITDA of $93.5 million increased 10% year-over-year to 31.2%, even as we absorb pricing pressures along with some inflationary impacts. The strong flow-through reflects cost discipline and operating leverage as we scale. On the bottom line, we delivered GAAP net income of $15.4 million or $0.07 per diluted share. This compares to $8.3 million or $0.04 per share in the prior year. Turning to the balance sheet. We ended Q1 with $345 million in cash after generating $76 million in operating cash flow. Our cash balance and positive cash flow distinguish us in the industry. We remain committed to maintaining this financial flexibility so we can invest opportunistically in growth while managing risk. To echo Ben's closing statements, we are excited about the road ahead in 2026 and beyond. The constructive regulatory changes, strong consumer demand, and our unique positioning provided us with confidence in our ability to deliver sustainable profitable growth. We have built this business to thrive in any operating environment. With that, I'll turn the call over to the operator for questions.

[Operator Instructions] Our first question comes from Aaron Grey with AGP.

So I guess the first question for me is, I just want to dive a little bit deeper in terms of how we're thinking about GTI and Rhythm. Maybe first, maybe how you're thinking about some of the capital allocation strategy, specifically talking about the new license agreement that was signed, I believe, on April 1, that about doubled the run rate implied in the first quarter that you guys just had. So how should we think about some of the methodology there in terms of, like, a shift to GTI or Rhythm in the near term? And then, longer term, just how we think about some of the optionality that you alluded to with Rhythm, particularly if some of the impacts on the 0.4 milligram limit for hemp-derived chased beverage come into effect in November.

Yes. Thanks, Aaron. This is Ben. I'll take that. It's good to hear from you. From the Green Thumb perspective, we think the investment in Rhythm provides a ton of optionality, as you mentioned. We've gotten very familiar with the listing standards, and I would say that's what drove the licensing agreement adjustment. But that really nets to the same amount of money. So we really don't view that as a material change at all. But wanting to be fully compliant with the NASDAQ remains very important. And from the Green Thumb perspective, we really like the investment. We're not sure what the future holds for the full regulations of the country. There's a lot of change going on now. But having a ton of these tools in our belt is a huge advantage for the business and for our shareholders. And so that's really how we look at it. Despite what may happen out there, we have a lot of ways to attack it. The common denominator in the whole thing is consumer demand for THC. So that's what we're building the business to optimize, and how we get there, which step exactly happens when is very hard to handicap, and that's never been our area of expertise.

Second question for me, just on Texas. Congrats on getting the conditional license there. I just want to think about how you're thinking about the market there. Given you've already seen what happened in Florida, we believe Texas could potentially set up somewhat similarly. So, how do you think about CapEx investments and early mover advantage in a market where you can build a lot of scale as the regulations are currently set up?

Yes, it's Anthony here. I'll take that one. Yes, look, big win by the team. We're extremely excited. At the same time, we're cautiously optimistic. There's a lot of hemp being sold in Texas as we speak. Right now, when you look at the business that the incumbent operators are doing, it's paltry relative to the amount of business that's being done on the hemp side. So in order for us to really have a lot of excitement about the Texas market. We're going to have to see some of the regulations that have already passed kind of stick because, at this point, it's hard for us to go ahead and make big capital decisions when it seems like there's already consumer access using a different regulatory set would be difficult for us to compete with, given the confines of the state regs at the moment. So we're in the spot where we're going to cautiously kind of watch and see how the hemp breaks evolve and at the same time, study the market, work on our playbook, and get ready to play ball if and when the hemp breaks kind of move in the direction that we think they need to.

Our next question comes from Bill Kirk with ROTH Capital Partners.

So Ben, a few quarters ago, I asked you what your preferred regulatory outcomes would look like. So this time around, I want to ask how the developments over the last few months have compared to what you would have considered ideal back in the summer of 2025.

It's a good question. I wish I could remember what I told you about my ideal situation. But look, the federal government acknowledging that this product has medical qualities is a welcome, refreshing step. It's about time. As Joe Rogan talked about, the policy that happened on the Controlled Substances Act was a race this policy out of the Nixon administration to make this product illegal; it never should have happened. So it's impossible to say this is not a huge positive step of a material nature. How it goes in the details, the bifurcation of medical and adult use that's happening at the federal level, we didn't see that exactly coming the way it did, but that doesn't surprise us. Look at every single state. I think every single state that has adult use started as medical. So it's certainly not a surprise. We like the clarity of direction from the treasury. That's pretty good. We like that certainty around what's going to happen with the cash. And we'll see. The process remains to unfold later this year. And I think we can tell you at the end of the year, as all cannabis gets rescheduled, that feels pretty good.

And then on the cash side, on buybacks, you were active in 1Q. You've been active since the quarter closed. But I guess now the question is, with the movement from the federal government, how do you think about share repurchases going forward versus putting cash or more cash behind some of your new best business ideas that may be emerging from the newer regulations?

Yes. Great question, insightful. And you're right. So we're extremely price sensitive on the buyback in size. So you can see we bought back a lot of stock at a very low price. We like that. That opportunity comes, and we still have an appetite. But given what's happening in the country, internationally and otherwise, there could be good opportunities. So we're not dying to go spend all the money we have. We're in a very fortunate position. We understand that. We respect it, and we're letting the cards come to us, and we'll see what happens. But there are very attractive investment opportunities. This country is not saturated with THC consumption. I mean, just look at what's happening at the liquor stores, look at what's happening at Target, at Circle K, at the United Center. That doesn't make anybody bullish on THC consumption in this country for a decade out, like study the data more because it's really off the charts. The country is not consuming alcohol the way it used to, and the generation that does consume alcohol is only getting older and older. So it's a very macro positive investment that we're doing. So we want to have the cash. We don't want to spend it all and then have to wait it out or have to borrow more money or something like that while things are a little tight. So we like the balance sheet. We want to maintain, but the nice thing is the business produces money, so we can keep refilling the coppers. Good question.

Our next question comes from Frederico Gomes with ATB Capital Markets.

Congrats on the great quarter here. The first question on the intoxicating hemp ban that is expected to become effective later this year. How do you think that impacts the regulated cannabis industry, specifically, I guess, the price compression dynamic that we see across several markets?

I can take that. It's Ben. Anthony may follow up a little here. If hemp goes away, it will be good for RISE's same-store sales. We think a lot of products that should be regulated through the state system are being sold as hemp. So if it's properly regulated, it should be strong for business. It should be strong for pricing. We're seeing some pockets that might be the beginning of flattening or some strength as hemp gets regulated away. So it should be very good for the Green Dumps business.

And then the second question, I guess, following this medical rescheduling, it seems like international exports could become possible. If that is the case, is that something that you look at or are interested in pursuing in the future?

Federico, Anthony here. Certainly, I mean, look, we love to run the business on optionality. Now, one of the things we have to look at is where we have excess capacity. There are only a few select markets where that's currently the case. But look, one of the things we want to do is continue to build our brands. And obviously, Europe is a place where we'd like to do that at some point in time. So, like everything else, we look at all the opportunities available to us. And that one, if the rights do play out in a way that allows us to do that, it's certainly something we're going to look at pretty extensively.

Our next question comes from Pablo Zuanic with Zuanic & Associates.

Ben or Anthony, I know you said rescharing is not legalization. You may want to expand on that because other people have said that, pretty much it is legalizing medical, if you want to clarify that comment. But more important than that, in your opinion, registering your business at the federal level with the DEA, what are the implications of that? And what doors will that open, if any?

Pablo, it's Ben. Second part first. The true answer on the DEA is we don't know. There's not a lot of guidance out here, but it's a step in the right direction. And so we're going through the process. And we're in communications. We have a lot of conversations, but this process is unfolding for everybody. It's pretty clear the President wanted to get it done. It got done. It doesn't mean every single thing is known, but we're fine with that uncertainty. So we're watching like everybody else. The schedule is not fully legalized because cannabis is not legal. You have medical cannabis is legal. We don't fully understand how that works in the Controlled Substances Act framework when it's about the substance. So it's not full legalization. It might be the legalization of some of the products. But what we think it does, and the most important for you and for us, is that it brings in a lot of new institutional investors. We think this opens up a new world of investors to come and examine the space because there is federal clarity on what's going to happen, and we think this process will unfold, starting to bring new conversations. People are getting interested in studying space. And so that makes it very interesting.

And then just to follow up. You talked about M&A, but nothing transformative, more tuck-in, I suppose. But can you talk about what gaps you would be looking to fill? And then, look, if I may add a third one, I understand the advantage of having Rhythm Inc. and the future optionality that you talk about. But given everything that's going on, doesn't that add extra complexity for investors, especially if you may be able to uplift the MSO base business eventually? I'm not pushing back on Rhythm Inc., but I'm just saying it could be an advantage, but also a disadvantage.

Yes, you're right. We'll have to see. We like the optionality out there. It may add some complexity to the conversation, but it's better to be in the game than waiting on the outside, hoping to be let in and then have to begin in what could be a year or a 3-year process. So we think we have a leg up, but we'll have to see how all that unfolds. And what was the first part of your question? I forgot. M&A.

Yes, I'll take that, Pablo. Look, we're constantly looking at each of the states and where there might be opportunities within each state market. And that's really where we're focusing our time and effort, and where we're seeing kind of opportunities that make sense for us. So that's really just a way for us to, in some markets, get a little bit more vertical, get some incremental retail exposure. But on the fringe, just continue to fill out the business within a few of these state markets where we still have opportunities to continue to grow share.

Our next question comes from Stefan Tee with Olpac Capital.

My question was about Section 280E tax code, which was just answered. So thank you, and thanks for your industry leadership, and I look forward to seeing you in Texas.

Our next question comes from Jeffrey Asher with Ash Inc. I'm not showing any further questions at this time. I'd like to turn the call back over to Ben Kovler for any further remarks.

Thanks, everybody, for joining us. We're available for questions should you have any follow-up. We hope everybody has a nice beginning of the summer, and maybe we'll see you at some of the bug balls. Thank you very much.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.