The Cannabist Company Holdings Inc. (OTC:CBSTF) Q2 2025 Earnings Call Transcript August 7, 2025
The Cannabist Company Holdings Inc. misses on earnings expectations. Reported EPS is $-0.16 EPS, expectations were $-0.029.
Operator: Good day, and thank you for standing by. Welcome to The Cannabist Company Second Quarter 2025 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 first speaker today, Lee Evans, SVP, Investor Relations. Please go ahead.
Lee Ann Evans: Good morning, and thank you for joining The Cannabist Company Second Quarter 2025 Earnings Conference Call. With me today are Chief Executive Officer, David Hart; President, Jesse Channon; and Chief Financial Officer, Derek Watson. Earlier this morning, we issued a press release reporting our results. A copy of this release is available on the Investors section of our corporate website, where you will also be able to access the replay of this call for up to 30 days. Certain remarks we make today regarding future expectations, plans and prospects for the company constitute forward-looking statements within the meaning of applicable Canadian and U.S. securities laws. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, which we disclose in more detail in the Risk Factors section of our annual Form 10-K for the year ended December 31, 2024, and in our subsequent quarterly filings.
Any forward-looking statements represent our views as of today and should not be relied upon as representing our views as of any subsequent date. While we may update any such forward-looking statements in the future, we specifically disclaim any obligation to do so, except as otherwise required by applicable law. Also, please note that on today’s call, we will refer to certain non-GAAP financial measures such as EBITDA and adjusted EBITDA. These measures do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. The Cannabist company considers certain non-GAAP measures to be meaningful indicators of the performance of its business in addition to, but not as a substitute for our GAAP results.
A reconciliation of such non-GAAP financial measures to their nearest comparable GAAP measure is included in our press release issued earlier today. With that, I will turn the call over to David Hart to get us started. David?
David J. Hart: Thank you, Lee, and thank you to everyone who has joined us on the call today. As we consider the results of the first half of 2025, our priorities remain unchanged. We are focused on liquidity and balance sheet management while continuing to make operational improvements, including taking costs out of our business. As we begin, I want to highlight some of the transformational initiatives that have been completed and those that are underway. First and foremost, we want to emphasize the completion of the debt restructuring transaction that we announced on February 27 and closed on May 29, extending the maturity of all $271 million of our senior debt obligations until at least December 2028. As we simplify the business, we have made strides with footprint optimization and bringing cash on to the balance sheet.
Q&A Session
Follow Cannabist Co Holdings Inc.
Follow Cannabist Co Holdings Inc.
During the quarter, we closed on the sale of our remaining license in Florida and are now focused on divesting our loan remaining asset in Florida, a cultivation facility. During Q2, we also closed on the sale of 2 retail locations in California. And as of July, our manufacturing facility in California is now under MSA as we continue to make progress on our exit of that market on a facility-by-facility basis. As we have noted previously, we are also working on divesting our business in the state of Illinois, which consists of 2 dispensaries and a cultivation facility. And as a new update, we are announcing today the signing of a transaction in Pennsylvania that will result in the sale of 3 retail locations for roughly $10 million as we pivot to a wholesale business model in Pennsylvania in order to better utilize the cultivation and manufacturing facility and to retain exposure in a market that should see an adult-use transition in the future.
Once we complete the Florida, California and Illinois market exits as well as the [wholesaleship] in Pennsylvania, The Cannabist Company will be active in 10 markets, down from as many as 18 in the past. On the operational front, we succeeded in taking costs out of the business in the quarter. As Derek will discuss shortly, we generated roughly 30 sequential basis points of improved adjusted EBITDA margin in Q2 despite pervasive and persistent headwinds in the sector. Lastly, I want to highlight some of our recent wins with a very successful launch of adult-use sales in all 3 of our retail locations in Delaware on August 1. I want to thank the team for getting Delaware AU off to a great start. Furthermore, we anticipate new stores opening in Ohio during the third and fourth quarters, and we look forward to further strengthening in our core markets like New Jersey and Virginia.
With that, let me turn the call over to Jesse to discuss our operational results and initiatives in more detail. Jesse?
Jesse Channon: Thanks, David. During the second quarter, the operations team continued its relentless efforts to simplify and optimize our business, focusing on the right products in the right locations to drive efficiencies, reduce costs and meet our customers’ needs. While the industry continues to battle pervasive headwinds, we achieved a number of positive outcomes. In Q2, our top 5 markets by revenue and EBITDA in alphabetical order were once again Colorado, Maryland, New Jersey, Ohio and Virginia, with New Jersey and Colorado achieving the biggest sequential revenue growth. Maryland, New Jersey and Ohio saw the largest increases in adjusted EBITDA sequentially. In New Jersey, we kicked up adult-use sales in our third Garden State dispensary in April.
During the second quarter, we completed the sale of 2 retail locations in California, and we have 1 dispensary remaining in San Francisco. We ended the quarter with 53 operational retail locations compared to 55 at the end of Q1. We currently have 3 stores in development in Ohio and one in Virginia. We expect our Norwalk, Ohio store to open during the third quarter. I’m pleased to note that our first-party brands continue to resonate with our customers and achieved strong growth in the second quarter. The cannabis portfolio of brands saw revenue growth of 17% sequentially in New Jersey with Seed & Strain leading the pack, followed by Triple Seven. Across all markets, Triple Seven was up 10% sequentially, driven by markets like Colorado, Maryland and New Jersey.
Seed & Strain is also a bright spot for our portfolio in Ohio, up marginally sequentially and over 74% over the prior year. Growth in the vape category for Seed & Strain in Ohio is a perfect example of our progress in aligning the product portfolio to meet the market demand in top-selling product formats. As for brand partners, during Q2, we launched COAST edibles in Maryland and plan to add additional markets soon as we’re already seeing excellent results. COAST launched in June and quickly became the #1 brand for the Maryland wholesale portfolio. We also saw revenue growth out of our other brand partners led by Bloom and Old Pal. Our efforts to methodically rationalize our SKUs and pricing architecture at the retail level continued in the quarter, and we expect additional progress in the second half of 2025.
As Derek will detail, during the quarter, we executed an initiative to clear obsolete wholesale inventory, which had a significant impact on margins in the quarter. I’ll wrap up my comments by taking a moment to express my profound thanks to the entire Cannabist team for their hard-fought efforts and continued commitment to serving our patients and customers with the highest experience. Lastly, a special shout out to the team in Delaware for a fantastic adult-use launch last week. Now let me turn the call over to Derek to dive into the financial results. Derek?
Derek Watson: Thank you, Jesse, and good morning, everyone. I’ll provide a summary of the key financial results for the second quarter, the impact of our balance sheet restructuring completed on May 29 and comment on our continuing efforts to enhance liquidity and improve profitability. For the second quarter, we achieved $87 million in revenue, a decrease of 1% from the first quarter, primarily due to the sale of 2 retail locations in California and ongoing pricing pressure the sector is experiencing. We ended the first quarter with 53 active retail locations compared to 55 at the end of Q1. On an adjusted basis, gross margin in the second quarter was 33% compared to 36% in the first quarter. The larger decline in our reported gross margin in the quarter was driven largely by inventory obsolescence, primarily in New York as well as the wholesale inventory reduction initiative implemented across 8 markets to clear older products or SKUs we are sunsetting as we simplify the business.
This initiative significantly reduced our quarter-over-quarter inventory balance, but also caused a large decrease in our reported wholesale margin as we sought to transact at market clearing prices for these specific products. Adjusted EBITDA in Q2 was $8.5 million compared to $8.3 million in the first quarter, representing a 30 basis point improvement in adjusted EBITDA margin to 9.8% in the second quarter. On a pro forma basis, reflecting just the 10 continuing markets once our announced divestitures have been completed, we achieved an adjusted EBITDA margin of 11.7%. In the second quarter, wholesale revenue increased 16% sequentially to $18.4 million compared to growth of 3.5% we reported in the first quarter and driven by the inventory reduction initiatives we’ve discussed.
As previously noted, this large increase in wholesale revenue was accompanied by a sequential decline in wholesale gross margin. Retail gross margin was also down in the quarter, driven by pricing pressure and a slightly higher level of discounting, including the annual impact of our promotions around 420. Wholesale revenue represented 21% of revenue in the quarter compared to 18% in Q1 and 16% in Q4. The overhang from the unabsorbed overhead and our underutilized production facilities remained flat at around a 4 percentage point impact on gross margin. As our footprint is reduced, we’re continuing to reduce overhead costs. In addition to the $23 million in annualized cost savings due to corporate restructuring we achieved during 2024, in the second quarter of 2025, we completed a smaller restructuring, representing approximately $2 million in annualized labor savings expense.
We plan to continue to take costs out of the business through the end of 2025. In the second quarter, operating cash flow was a positive $4 million, inclusive of a $10 million onetime receipt as a full and early settlement of a note receivable. CapEx in the quarter was $2 million, and we continue to expect CapEx to average less than $3 million per quarter, primarily supporting new store openings in Ohio and Virginia and enhancing our back-of-house capabilities. Together with proceeds from divestitures and almost $11 million in cost to complete our debt refinancing on May 29, free cash flow in the quarter was negative $3.5 million. We ended the second quarter with $15.5 million in cash compared to $18.9 million at the end of the first quarter.
During Q2, we contracted for $7 million in divestitures from asset sales, approximately $5 million of which was received and $2 million is still outstanding for payment at the end of the quarter. As we’ve announced today, we anticipate a short closing window for the sale of retail assets in Pennsylvania, which will add $10 million of gross proceeds to our balance sheet. This transaction will also provide us with new revenue streams in Pennsylvania through an incremental supply agreement and the related sublease transaction. As David stressed, liquidity management continues to be paramount, and we’re continuing to work towards closing the pending divestitures in Florida, California, Illinois and now Pennsylvania and making further operational improvements to our business.
With that, I’ll turn the call back to David for final comments. David?
David J. Hart: Thank you, Derek. Thanks to everyone for joining. We look forward to providing additional updates on our key priorities as we focus on liquidity and balance sheet management while simplifying our operations.
Operator: And this concludes today’s conference call…
