Thread by @Sayshu_MM

$VRNOF 2Q21 Earnings - My Takeaways:

1. Revs and AEBITDA of $199m/$81m vs. est. of $188m/$81.5m. GMs declined to 50%, and unadj. EBITDA margin was 26% and AEBITDA margin was 41%
2. Lots to unpack in the report, incl some one-time impacts from M&A and accounting changes
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3. First, on 1Q call company guided to "near" $200mm in revs for 2Q, and said unadj EBITDA margins should be in low-40s range with some potential volatility as acquisitions are integrated. By this measure, Company did what they said on revs, and EBITDA indeed showed some vol
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4. I was impressed by how mgmt tackled the margin issue head on and appreciated them quantifying the various impacts:
- 300bps from inv. step-up (1x)
- 300bps from accounting treatment of change in cultivation practices (1x?)
- 200bps from Agrikind acq. slipping from 2Q to 3Q
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5. If you add these adj back, GMs in 2Q would've been 58.4% vs. 50.4% reported, and unadj/adj EBITDA margins would've been 34%/49%, resp. Better than reported, but a step down from 1Q levels. Company said margins will improve in 3Q/4Q, but 1Q likely the high-water for 2021
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6. Taking a step back, even in a choppy 2Q, Verano posted some impressive profitability metrics vs. other MSOs and another qtr of positive FCF. While the qtr didn't measure up to the Company's own standards on margin, mgmt expressed confidence that the issues are transitory
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7. Mgmt also gave guidance that $VRNOF would be at a $1.1bn run-rate by the end of the year. That implies $275m of 4Q sales, up from $199m in 2Q. Wow. Implies ~17.5% qoq growth in each of 3Q and 4Q. Some of this will be inorganic, ofc, but big growth ramp
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8. Mgmt plans to achieve this growth with more store openings vs. plan and cultivation improvements driving productivity. New cultivation will come online in 2H21, but impact likely to be felt in 2022
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9. Company said FL going better than expected. Cultivation expansion finished ahead of schedule and gearing up for another expansion. Company has 35 stores open rn, but I anticipate that will grow meaningfully through 2022
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10. George mentioned they are not engaging in meaningful price discounts in FL and that biz not getting hit from general discounting activity. Similar to $CURLF, it bears watching
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11. Company confident in its cash position ($150m) and said any incremental cash needs will be done through debt, not equity. This is huge if they can stick to it
12. Expect to be GAAP filer by EOY. Nice "check mark" for the story when they get this done
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13. Big lockup comes due today and George said they decided not to extend it. While there could be some short term volatility, ultimately the lockup will increase supply of shares which will help liquidity. Fwiw, I agree with the move
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14. George is the largest shareholder of Verano and insiders control 25% of shares. Presumably, they aren't selling, but something to keep an eye on (for all investments)
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15. Company making meaningful brand investments as they scale in diff states. This is the first time they talked about it so openly, and its something that I think will pay dividends in the future...

16. Company is also investing in a large digital overhaul, incl a new website (1Q22), SEO optimization, and in-house custom mobile app. Again, I tend to like things like this as it builds a tighter customer connection and removes friction from the ordering process
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Overall, $VRNOF delivered a solid qtr, albeit below the (v high) standards they set for themselves in 1Q. Zooming out, even with all the 2Q noise, Verano's fin profile remains one of the best in US cannabis, and is likely to improve from here.

End.