8-K/A: Verano Holdings Reports Record Revenue for 2023, Achieves Positive Free Cash Flow

Verano Holdings Corp. announced record full-year revenue of $938 million and positive free cash flow of $73 million for 2023, alongside fourth-quarter results showing a 5% year-over-year revenue increase.

Summary

• Verano Holdings Corp. reported its financial results for the fourth quarter and full year ended December 31, 2023.
• The company achieved record full-year revenue of $938 million, a 7% increase compared to 2022.
• Full-year gross profit was $475 million, representing 51% of revenue.
• The company generated $73 million in free cash flow for the full year, meeting its guidance.
• Net cash provided by operating activities for the year was $110 million, a 16% increase year-over-year.
• For the fourth quarter, revenue was $237 million, a 5% increase year-over-year but a 1% decrease compared to the previous quarter.
• Fourth-quarter gross profit was $118 million, or 50% of revenue.
• The company reported a net loss of $73 million for the fourth quarter, which was an improvement compared to a $216 million loss in the same quarter of the previous year due to a large impairment charge in 2022.
• Adjusted EBITDA for the full year was $305 million, or 32% of revenue, and $73 million, or 31% of revenue for the fourth quarter.
• The company's current assets were $394 million, including $175 million in cash and cash equivalents, with a working capital deficit of $18 million and total debt of $446 million as of December 31, 2023.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to record revenue, positive free cash flow, and expansion efforts, but tempered by the net loss and a projected revenue decline in the next quarter.

Positives

• The company achieved record revenue for the full year 2023.
• Verano generated positive free cash flow of $73 million for the year.
• Net cash from operating activities increased significantly year-over-year.
• The company improved its net loss compared to the previous year, primarily due to a large impairment charge in 2022.
• Gross profit margins improved for the full year.
• SG&A expenses decreased as a percentage of revenue for the full year.
• Verano expanded its retail footprint by opening new dispensaries in key markets.
• The company launched new brands and products, including Savvy Threads and the reimagined Essence brand.

Negatives

• The company reported a net loss of $113 million for the full year and $73 million for the fourth quarter.
• Fourth-quarter revenue decreased by 1% compared to the previous quarter.
• The company has a working capital deficit of $18 million.
• The company has a significant amount of debt, totaling $446 million.
• Gross profit margin decreased in the fourth quarter compared to the third quarter.

Risks

• The company faces risks related to the normalization of dispensary counts in New Jersey, which is expected to cause a revenue decline in the first quarter of 2024.
• The company's financial performance is subject to regulatory changes and potential federal rescheduling decisions.
• The company has a working capital deficit and a significant amount of debt, which could impact its financial flexibility.
• The cannabis industry is subject to various legal and regulatory risks, including potential challenges to the legality of intrastate cannabis commerce.

Future Outlook

The company expects a 5-7% revenue decline in the first quarter of 2024 due to the normalization of dispensary counts in New Jersey. The company is optimistic about growth opportunities from adult use legalization in Ohio, Florida, and Pennsylvania, as well as potential federal rescheduling.

Management Comments

• George Archos, Verano Founder and Chief Executive Officer, stated he is incredibly proud of the company's performance in 2023.
• He believes 2024 has the potential to be a game-changing year for the industry and that Verano is well-positioned to capitalize on growth opportunities.
• Archos also mentioned the potential impact of adult use legalization in Ohio, Florida, and Pennsylvania, as well as the anticipation of a federal rescheduling decision.

Industry Context

This announcement comes as the cannabis industry anticipates further regulatory changes and potential federal rescheduling. Verano's performance reflects the ongoing growth and challenges within the multi-state operator sector, with a focus on expanding retail presence and brand development.

Comparison to Industry Standards

• Verano's revenue growth of 7% year-over-year is within the range of other established multi-state operators, such as Curaleaf and Trulieve, which have also reported single-digit growth in recent periods.
• The company's adjusted EBITDA margin of 32% for the full year is comparable to other leading cannabis companies, although some competitors may have slightly higher or lower margins depending on their operational focus and market presence.
• Verano's free cash flow generation of $73 million is a positive sign, as many cannabis companies are still struggling to achieve positive cash flow. This puts them in a better position than companies like Canopy Growth, which has struggled with profitability.
• The company's expansion into new markets, such as the opening of new dispensaries in Florida, Connecticut, and Pennsylvania, is consistent with the growth strategies of other multi-state operators.
• The launch of Savvy Threads is a unique approach to brand extension, which is not commonly seen among other cannabis companies, and could provide a competitive advantage.

Legal Proceedings

• The company announced its participation in a coalition of industry stakeholders as a plaintiff challenging the legality of the federal government's intervention in legal intrastate cannabis commerce.

Stakeholder Impact

• Shareholders will be impacted by the financial results, including the record revenue and positive free cash flow, but also the net loss and projected revenue decline.
• Employees may be impacted by the company's growth and expansion efforts.
• Customers will benefit from the company's expanded retail footprint and new product offerings.
• Suppliers and creditors will be impacted by the company's financial performance and cash flow.

Next Steps

• The company will continue to focus on expanding its retail footprint and brand portfolio.
• Verano will monitor regulatory developments and potential federal rescheduling decisions.
• The company will participate in a conference call and webcast to discuss the results with analysts and investors.

Key Dates

Keywords

cannabis, Verano, financial results, revenue, EBITDA, free cash flow, dispensaries, multi-state operator, retail, wholesale