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

Good day and thank you for standing by. Welcome to Green Thumb Industries Q2 '26 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like to now hand the conference over to your first speaker today, Andy Grossman, EVP, Capital Markets. Please go ahead.

Thank you, Angelina. Good afternoon and welcome to Green Thumb's Second 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 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 Investor 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.

Thanks, Andy. Good afternoon, everyone, and thank you for joining Green Thumb's second quarter 2026 earnings call. Before we get into the numbers, I want to take a step back. We're nearly 12 years into the Green Thumb story, building the company from scratch with no roadmap, no playbook, no guarantee of anything, yet quarter after quarter, year after year, we show up and build brands Americans love. We take care of our team, manage the balance sheet, and do the work. That's the Green Thumb story, simple but not easy. We built the company to stand on its own without waiting for federal reform. That discipline is paying off. Medical cannabis is now on Schedule III of the Controlled Substances Act. The first domino has fallen. The DEA's broader rescheduling hearing wrapped in mid-July, and we expect a decision on the rest of cannabis later this year. This is, in fact, real progress. The direction is clear, even if the timing isn't. When the next domino falls, Green Thumb will be ready with the brands, the balance sheet, and the team to meet the moment. That work is already underway. As we shared on our last call, we've registered some of our state-licensed medical cannabis operations with the DEA and site inspections have begun. This is important because this makes these operations federally legal. We're also preparing to uplist Green Thumb on a U.S. exchange as the path opens. We anticipate listing the business in full, not in part, and we have open dialogues with both major exchanges. But we didn't get to where we were going by waiting, and we won't start waiting now. The state-level environment is more dynamic than it's been, including changes in Virginia and Texas. But here's the bottom line. Green Thumb is in a strong position. Our business generates cash and we carry a strong balance sheet, which means we engage the capital markets on our terms. And as the environment changes, we won't be reacting to it. We'll be moving on it from a position of strength. And that strength starts with the results. So, let's turn to the quarter. Second quarter revenue came in at $307 million, up 5% year-over-year. Normalized EBITDA was $84 million, or approximately 28% of revenue. Cash flow from operations was $29 million. There's real momentum here and we're proud of the stability we've built despite ongoing price compression and competition. Our results demonstrate this as we see early signs of potential price stabilization in some markets. We ended the quarter with $284 million in cash on the balance sheet, and that's over $1 a share. Beyond the numbers, the bigger story this year has been state-level regulatory progress. Positive developments in Virginia and Texas get us excited about future growth. Together, these two states represent broader access for roughly 12% of the country's population. And in both, we already have a head start. Anthony will walk through some of those highlights, but the takeaway is simple. Careful planning and a deep understanding of each market's dynamics means we are ready. The same discipline shapes our current approach to growth through tuck-in deals and steadily expanding retail footprint. We're keeping a close eye on hemp policy with the federal ban set to take effect on November 12 of this year. But you never know. Interestingly, Ohio offers a preview of what could happen across the country. Following the state's own ban on intoxicating hemp, Ohio's regulated market has grown more than 10% based on state-level data. Consumers are moving into the regulated market and we expect hemp demand to keep shifting into cannabis as the ban takes hold. In other words, if the ban takes place, it favors operators with scale, brands, and shelf space already in place. This backdrop matters for one of the fastest-growing categories, THC beverages. In our view, beverages are a distinct category from intoxicating hemp products, and we think regulators and industry participants are starting to see the same thing. We remain big believers in the category and we are optimistic that this transition will eventually carve out a lasting place for THC beverages in the mainstream market. They're already showing up at major events and venues across the country, including Lollapalooza and the United Center, and retailers like Circle K, Target, and Total Wine. We're paying close attention to the consumer trends, particularly through our investment in RYTHM Inc. And on that note, there's a potential change coming to how RYTHM Inc. appears in Green Thumb's financials, in our results. On August 10, RYTHM shareholders will vote on a proposal that if approved, would result in Green Thumb consolidating RYTHM into our financial statements as early as October 10, 2026, presenting the combined economics in one place rather than under the equity method that we use today. Nothing will change economically, but our reported results will look different once they include RYTHM. You can find more information on this potential change for RYTHM Inc. in the proxy filed by RYTHM with the SEC on July 9, 2026, on sec.gov and available on the RYTHM website. We believe Green Thumb has created significant value that the market is not currently reflecting. Structural issues in this industry are real, but we never let the things we can't control define the things we can. We're building this company for the next decade or decades, not the next quarter or year. That conviction is why we allocate capital towards repurchasing shares at these levels. During the quarter, we bought back the equivalent of about 8 million shares at an average price of just over $6. And since Q4, 2023, we've repurchased approximately 29.5 million shares at an average price of $7 per share, which represents more than $200 million returned to shareholders in a tax-efficient manner. That's roughly 13% of the shares outstanding, so each remaining share represents a 13% bigger portion of the business. So, we'll continue to do exactly what we said we would do, grow the business, take care of our team, return capital to shareholders when it makes sense, and pounce when the opportunity presents itself, all while the environment catches up to the value we've created and continue to build. We are deeply committed to creating long-term value for all of our stakeholders and that will always be the Green Thumb story. With that, I'll turn the call over to Anthony.

Thanks, Ben. The second quarter was a productive one. The company generated $307 million of revenue and $84 million in normalized EBITDA, representing 5% year-over-year top-line growth. Unpacking the results, retail revenue grew just under 4% versus the prior year period with strong contributions from Minnesota, Connecticut, and Florida. Same-store sales on a base of 103 stores were down approximately 1%, a modest step down from the 0.5% decline we reported in Q1. Pricing compression remained a headwind, particularly in Massachusetts, New Jersey, and Pennsylvania, and our teams continued to navigate it effectively through operational discipline, creative product merchandising and pricing, brand strength, and our omni-channel platform. On the CPG side, gross revenue also grew just under 4% year-over-year, led by Minnesota, Ohio, New Jersey, and New York. We continue to lean into our wholesale business, and we're pleased with our market share performance across Illinois, Pennsylvania, Ohio, Maryland, and Minnesota, where we retain the number one position in each state. Turning to capital allocation, we deployed $20 million into the business during the quarter. Approximately $5 million in retail CapEx supporting store relocations and build-outs in Pennsylvania, Virginia, and Florida, and $15 million on the wholesale side for capacity expansions and maintenance needs. With Virginia's adult-use launch in mid-2027, we're actively evaluating the right level of incremental investment into that market. Full year 2026 CapEx guidance remains approximately $80 million. A quick note on recognition. During the quarter, GTI was named to Time Magazine's list of America's Best Companies. [ Data was ] collected from more than 7,200 eligible companies across every industry and scored on employee satisfaction, financial performance, and sustainability practices, we are the highest-ranked cannabis company on the list, a genuine honor for our team. On the regulatory front, Virginia and Texas represent two extremely compelling near-term growth catalysts. In Virginia, adult-use legislation has been signed and takes effect July 1, 2027. As a reminder, we're one of 5 licensed medical operators in the state and currently operate 6 RISE dispensaries and 2 cultivation facilities. We've been investing and planning ahead of this transition, drawing on the playbook we recently executed in Minnesota, Maryland, and Ohio. The opportunity is immense. Approximately 9 million residents in meaningful geographic proximity to North Carolina, Kentucky, and Tennessee, states where cannabis access remains extremely limited. In Texas, we were awarded a conditional license under the Compassionate Use Program on April 1. During Q2, we focused on completing background checks, state paperwork, defining our real estate strategy, and thinking through how to enter the program in a differentiated and scalable way. Texas has a GDP of approximately $3 trillion, the eighth largest global economy, and if the state follows through on expanding its Compassionate Use Program, the long-term upside is significant. We're excited to bring our brands and our "Enter, Open, Scale" model to the Lone Star State. Subsequent to quarter end, we had a few notable milestones. In New Jersey, we successfully transitioned our previous medical-only RISE Paramus dispensary to include adult-use sales, a multi-year effort that's a real credit to our government affairs team. In addition, we opened RISE Hanover in Pennsylvania, adding to our retail store portfolio that exceeds 120 stores. Stepping back, the macro backdrop hasn't changed. Federal legislative uncertainty, pricing compression, and consumer discretionary pressure remain near-term business headwinds. We remain confident that our team, operational discipline, brand strength, and capital position provides us with the ability to navigate these headwinds while still investing in our team and future growth opportunities. As noted in our press release, we made deliberate incremental investments in our team this quarter that pressured near-term EBITDA margins. Of all the investments we make across the business, the ones into our team have some of our highest intrinsic returns. One more thing before I hand it over to Matt. For those of you in the Philadelphia area, we'd love to see you at our RYTHM Bud Ball on August 26. As a reminder, our RYTHM Bud Balls have become one of our favorite ways to celebrate the cannabis community through music and culture. After big nights in New York with Ferg and Chicago with Chance the Rapper, we're bringing the magic to the City of Brotherly Love. The acts haven't been publicly announced yet, but it's going to be a banger. And we hope to see you there. Matt, over to you.

Thanks, Anthony, and hello, everyone. From a top-line perspective, revenue increased 5% year-over-year, driven in large part to the 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 third quarter sequential revenue to be flat due to the pricing environment. Gross profit for the second quarter was $138 million, or 45% of revenue, compared to $146 million, or 50% of revenue year-over-year. The decrease in gross margin was driven by $17.5 million of brand licensing fees incurred in the current period. On a normalized basis, margins saw slight improvement over last year. Turning to OpEx, selling, general, and administrative expenses for the second quarter were $118 million, or 38% of revenue, compared to $107 million, or 36% of revenue for the second quarter last year. The increase in total expenses was primarily attributable to overall compensation benefit costs along with increased costs associated with opening, acquiring, 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 $84 million compared to $74 million in the second quarter of last year. The increase year-over-year is mainly attributed to the deliberate changes to our compensation structure this quarter, as Anthony mentioned, along with other targeted investments in the business. A normalized EBITDA of $84.3 million, or 27.5%, was down slightly from last year of 28.2% due to the OpEx investments previously referenced. On the bottom line, we delivered GAAP net income of $4.9 million, or $0.02 per basic and diluted share. This compares to a loss of $0.6 million or $0.01 per share in the prior year. The current year includes some benefit from 280E relief for medical cannabis, while the prior year included a loss recorded from the IP sale. We remain committed to maintaining this 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.

[Operator Instructions] Our first question comes from the line of Kenric Tyghe from Canaccord Genuity.

I wonder if we could just dive into the margin profile in quarter, just in the context of the flat revenue expectation in Q3. Obviously, pricing pressures are still there, but you did also call out sort of in select markets, some of the moderation, promotional intensity. So when we look to that gross margin kind of ex the licensing fees, how do you see that evolving here in the second half?

This is Matt. When you look at pricing, it's a little bit of the unknown. We've seen pricing pressures continue there. And while there might be some signs of easing in a few select markets, there still is pricing pressures across that's going to weigh on the top line. As it relates to margin, the licensing fees, once that was moved to a fixed licensing fee, this was the first full quarter of the fixed fee structure. So the licensing fees will be consistent in Q3 compared to Q2.

If I could just pivot quickly to Virginia, obviously very topical. Could you speak to -- given your footprint there and as strong as it's believed to be, could you speak to within the Virginia market, for how long that market could be expected to be supply constrained and potential biomass availability or other constraints as we look to ramp? I think we're all just trying to handicap the second half here of '27 on a launch without getting too far over our skis given some of your competitor commentary on those dynamics.

Yes, Kenric, this is Anthony here. So let's just like analyze the setup here. We've got -- you have some of the incumbents that have some existing capacity. We're 1 of the 5 medical operators. And then you have potentially new capacity coming on through the incremental licensing. The additional licensing step has not yet taken place. So that remains kind of a question mark. And again, this is in the backdrop of a planned July 1, 2027 launch. So, call it within 12 months at this point, just under. From the Green Thumb side, we completed a capacity expansion through a second facility about 18 months ago. Candidly, we thought that adult-use was going to happen sooner, and so we did the build-out kind of in anticipation of that. One of the things we're doing right now with the team is kind of assessing, do we have enough capacity? What are others doing? And how would that kind of translate into our ability to kind of service the market? I think one of the things that's difficult to kind of estimate is demand. Given Virginia's location in that kind of southeastern Mid-Atlantic corridor, you have a very vibrant kind of intoxicating hemp market. So if the loophole does in fact close in November, we think that could kind of materially impact demand, which then would put probably incremental pressure on the supply side. So as it relates to Green Thumb, we're kind of -- that's the math we're kind of looking at and running in our minds. In terms of how much additional capacity we'll add, we'll determine that over the coming months. But we expect there to be some supply constraint within the market out of the gate, but really depending on how hemp shakes out, as well as how soon the state licenses other operators will really kind of determine overall, how long that would last.

Our next question comes from the line of Aaron Grey from AGP, Alliance Global Partners.

Just Regarding some of the prepared remarks in terms of plans for potential uplisting. I just wanted to get some incremental color there. Any commentary in terms of whether or not obviously that would be post [ Phase II ] rescheduling that included the whole plant. Is there any anticipation of any additional guidance from FinCEN or otherwise needed to potentially build -- uplist adult-use as well from your conversations with either NYSE or NASDAQ? And then just talk maybe further about whether or not the plans to consolidate RYTHM were in line with that thinking of having that listing or if that was separately involved.

Well, second question first, I mean, seperate. But I think clarity and consistent story for investors. We see this as going kind of into the new era. We're moving from Schedule I to federally legal, DEA compliant, and should open up a brand new world of investment, so we think we've got a great story. We're teeing up to get out and tell it. We think the multiple is cheap. In terms of what's required, not totally positive, so I can't give you an exact firm answer, but we know that the DOJ has to wrap up and adult-use would have to be rescheduled. And then we think it's a rather fast path, but you don't know what you don't know. But we're teed up to do it and to be ready. And we think we've got a good growth story coming with a couple of things in the tank here, potentially some of the growth fueled by hemp and other things. So that's where we sit. But the next big tell is going to be the rescheduling of adult-use products.

Second question for me, just in terms of the SG&A uptick in the quarter, just looking through the 10-Q, it did seem that there was some acquisitions or some consolidation, at least of some retail stores, particularly called out the 8 stores in there. So I just wanted to ask how much of that was included within the SG&A versus just organic investments? And then bigger picture, just how you're thinking about smaller tuck-in M&A and deeper penetration within select existing states?

Sure, I can take that. So, first of all, with the SG&A, it's the combination of the incremental stores that were acquired during the quarter that have a decent SG&A profile that weighed a bit there, but it's also the compensation investments that we made that were incremental this quarter compared to last quarter that had additional weight to SG&A during the period.

And then M&A. This is Ben. I can take the M&A side, just our general appetite on M&A. I would say it's been a very consistent approach here over the years. We look at everything, we evaluate if it makes sense or not. We're really trying to generate returns and do a positive -- a good return on the invested capital. We're not interested in sort of empire building or some future promise of what might happen or things like that. So it's really gotta make sense to us. And we've been able to find a few things. We'd rather find a great M&A deal than buy a lot of our stock. It depends how cheap the stock is, but buying and doing an M&A can get us scaled, can get growth and can be better for shareholders in the future. So we're out there looking and it's an interesting environment given the uncertainty going with a lot of things, given the tax situation, which I can't emphasize enough how just important the tax issue is out there in terms of cash and what's going on and how it might impact M&A. But we're out there talking, pretty active.

Our next question comes from the line of Frederico Gomes from ATB Cormark Capital Markets.

I want to ask about beverages. You mentioned that you're optimistic for a beverage carve-out potentially. And you mentioned that beverage may be a different consumption format from the [ others ] and policymakers are seeing that. So, I'm curious if you could elaborate on that, why beverages and not other formats like gummies, for example, and why you believe beverages could be treated differently here.