Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Vext Science Inc (VEXTF, Financial) reported revenue of $8.4 million and adjusted EBITDA of $1.1 million for Q2 2024.
- The launch of adult-use cannabis sales in Ohio has shown good initial demand, with significant increases in traffic at dispensaries.
- The Columbus dispensary integration resulted in a 45% increase in consolidated retail sales.
- Vext Science Inc (VEXTF) is fully vertically integrated in Ohio, positioning it to capture significant market share.
- The company has a strong strategic positioning in Ohio, with plans to reach the state dispensary license cap by 2024 and operational by Q1 2026.
Negative Points
- Revenue for Q2 2024 was flat compared to the previous quarter and down from $9.2 million in Q2 2023.
- Continued downward pressure on wholesale prices and muted consumer discretionary spending in Arizona led to margin compression and decreased sales.
- Operating expenses were higher compared to Q2 2023, driven by increased costs in Ohio ahead of the adult-use launch.
- Cash flow from operations was negative $0.6 million during Q2 2024.
- The company faces significant economic and macroeconomic pressures impacting consumer spending in both Ohio and Arizona.
Q & A Highlights
Q&A Highlights from Vext Science Inc (VEXTF) Q2 2024 Earnings Call
Q: Could you outline the pathway to getting to the license cap of eight in Ohio by year-end and the timing for opening the remaining dispensaries?
A: (Eric Offenberger, CEO) The pathway involves state authorization and LOIs. We expect to open two dispensaries in the first half of 2025 and the remaining two by 1Q 2026. We are actively working on the Columbus site and anticipate state actions by mid-September.
Q: What level of own brand penetration are you targeting in Ohio once you reach the store cap?
A: (Eric Offenberger, CEO) We anticipate own brand penetration to be north of 50%, depending on pricing pressures and margins. We aim to control input costs better through internal production.
Q: How is the new growth in Arizona performing compared to expectations, and will higher yield output impact Q2 results?
A: (Trevor Smith, CFO) The new growth is significantly outperforming old locations. Higher yields will result in lower per unit costs, impacting Q3 slightly but more significantly in Q4 and beyond.
Q: When do you expect new rules for Ohio's non-medical market, and what impact will they have?
A: (Eric Offenberger, CEO) We anticipate new rules by September 7. These rules will likely allow more advertising and customer outreach, which should help despite current economic pressures.
Q: Can you provide any quantifiable lift seen in the first two weeks of non-medical sales in Ohio?
A: (Trevor Smith, CFO) Specific numbers are not provided, but initial results are consistent with state-reported data. We expect a clearer picture by August 30, a significant payday.
Q: How were you able to renegotiate the price of Ohio assets?
A: (Eric Offenberger, CEO) The renegotiation was due to state clarifications on 10(B) licenses and ensuring no ambiguity in the transaction, aligning with state authorizations.
Q: When will Kentucky announce the companies that won licenses, and how many licenses will be issued?
A: (Eric Offenberger, CEO) Applications are due by the end of the month, with the state aiming to finalize plans by year-end. The exact number of licenses is not specified.
Q: What is the cash flow outlook for the next six months, and how will it fund growth in Ohio?
A: (Trevor Smith, CFO) Arizona remains cash flow positive. Ohio's cash burn in Q2 was due to preparations for adult-use sales. We expect Ohio to become cash flow positive as adult-use revenue comes in.
Q: What are the market trends and valuations for dispensaries in Arizona?
A: (Eric Offenberger, CEO) Valuations depend on asset utilization and retail consumption. Recent transactions suggest reasonable multiples, but cash availability remains a challenge for many.
Q: What factors contributed to margin compression in Q2, and what is the outlook?
A: (Trevor Smith, CFO) Margin compression was due to pricing pressure and increased expenses in Ohio. We expect margins to improve in the back half of the year with higher yields and adult-use revenue.
Q: Where do you see the need to add additional operating infrastructure in Ohio?
A: (Eric Offenberger, CEO) Additional expenses will be variable, driven by increased transactions and inventory needs. No significant capital expenditures are planned.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
