Good day and welcome to the Cresco Labs first quarter 2026 conference call. All lines will be in listen-only mode. Should you need assistance, please signal for pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then one on your touchstone phone. To withdraw your question, press star one again. Please note this event is being recorded. I would now like to turn the call over to TJ Cole, Senior Vice President, Corporate Development and Investor Relations for Cresco Labs. Please go ahead.

Thank you. Good morning and welcome to Cresco Labs' first quarter 2026 earnings conference call. On the call today, we have Chief Executive Officer and Co-Founder Charles Doctel, Chief Financial Officer Sharon Shuler, and President Greg Butler, who will be available for the Q&A. Prior to this call, we issued our first quarter earnings press release, which has been filed on CDAR and is available on our Investor Relations website. These preliminary results for the first quarter are provided prior to the completion of all internal and external reviews and therefore are subject to adjustment until the filing of the company's quarterly financial statements. We filed our corresponding financial statements and NDNA for the quarter ended March 31, 2026 on CEDAR and EDGAR earlier this morning. Before we begin, I want to remind you that statements made on today's call may contain forward-looking information actual results may differ materially the risk uncertainties and other factors that could influence actual results are described in our earnings press release and in the most recent annual information form and mdna filed with securities regulators this call also contains non-gap measures also outlined in our earnings press release and in the mdna filed with the securities regulators please also note that all financial information on today's call is presented in us dollars and all interim financial information is unaudited with that i'll turn the call over to charlie good morning everyone and thank you for joining cresco labs first quarter 2026 earnings

call we started 2026 with a distinct plan build for growth from a scaled foundation and go deeper in markets that have structural advantages all while maintaining margin and cost discipline In the first quarter, we delivered against each of those priorities. As we outlined last quarter, following our exit from California and the impact of excise taxes in Michigan, Q1 establishes the baseline for our 2026 growth trajectory and beyond. With growth initiatives that have or will materialize subsequent to the quarter, we expect to build through the balance of the year. In Q1, we generated $151 million in revenue. we produced $77 million in adjusted gross profit and $33 million in adjusted EBITDA. These results are in line with our expectations and reflect the efficiency gains we've made over the past two years. As this efficiency intersects with growth initiatives, increasing scale and optionality, performance will improve throughout the year with this momentum translating into meaningful growth and value creation well into 2027. First, I want to thank the Cresco team. They continue to be incredibly focused and intentional in how they make decisions across wholesale, retail, and capital allocation. That's what's driving our momentum in 2026. Now I'll walk through how Q1 delivered against our plan. First, a strategic footprint and a return to growth. We're building for growth by strengthening our leadership positions in priority markets while adding new markets that have compelling long-term value. Pennsylvania is a clear example of this. we already hold the number one branded share in the state, supported by a scaled cultivation platform and 18 existing Sunnyside locations. Building on that, we entered into a highly accretive agreement to acquire nine dispensaries in the state of Pennsylvania. Subsequent to the quarter, we began operating the nine stores under a management service agreement, bringing our total footprint in Pennsylvania to 27 stores, and they're already contributing to our second quarter results. We're applying a proven integration playbook and see a defined path to improving productivity and returns. The transaction is expected to close following standard regulatory approvals. This is a well-structured transaction that builds on our leading position in the second largest medical market in the country, further preparing us for a likely adult use catalyst. In Ohio, we are expanding our position. Subsequent to the quarter, we completed our strategic retail build out with two new Sunnyside dispensaries Bridgeport in April and Aberdeen this week bringing our total to eight stores in the state both locations expand our presence in key border markets which remains a differentiator in our approach to the state in newer markets we're growing through organic expansion including successful license application wins in Kentucky we reached a significant milestone with our first harvest in April demonstrating the development of Kentucky's program and a shift from CapEx build out to revenue production. We expect branded products to reach patients in the second quarter. New medical programs take time to ramp up, so Kentucky's contributions this year will be modest, matching the pace of patient enrollment and dispense reopenings. That said, the program is expected to scale materially over time later this year and into 2027. In Texas, we are very excited to have received one of only 15 merit-based licenses for what we expect to be one of the most attractive long-term growth opportunities in the industry this provides yet another low-cost high-return entry as the regulatory framework evolves in the second most populous state in the country we look forward to helping that market develop consistent with how we have executed in our core markets that we helped launch second we win where we operate while we continue to identify opportunities to deepen and expand and our footprint, we're equally focused on improving our base business, ensuring our operations, brands, and teams are consistently high-performing in every state we serve. Our wholesale business remains a core strength. We hold leading positions across our core states of Illinois, Pennsylvania, Massachusetts, and Ohio. That's driven by the consistency of our cultivation, the strength of our brands, and our established distribution strategy across both our retail network and third-party stores. On retail, Sunnyside dispensaries generate over 30% more revenue per store than state averages, and we've sustained that outperformance over multiple quarters despite heightened competition and pricing pressure. This reflects the strength of our operating model from site selection to in-store execution. I also want to highlight the performance of our cultivation team. Despite operating within a largely fixed footprint, we're driving incremental improvements in both yield and quality. Through continued optimization of our genetics, environmental controls, and post-harvest processes, we're producing higher volumes and better quality from the same assets. This enables us to supply the wholesale market while maintaining our targeted mix of own brands in our stores and supporting exclusive offerings at Sunnyside. Florida is a good example of this. We've held our share position despite increased capacity coming online from competitors, driven by operational gains within our existing footprint. These efforts have improved product quality with average flower potency up materially year-over-year, alongside higher yields and a broader strain portfolio, with new harvests already entering the market in the second quarter. Together, our scaled brands and our retail footprint allow us to drive demand, optimize shelf space, and capture margin across our footprint. Before I pass it to Sharon, I want to address what rescheduling means for Cresco Labs and outline the next steps. Moving state-legal medical cannabis from Schedule 1 to Schedule 3 is the most consequential reform we've seen. It's a win for all patients nationwide and will usher in a new era of healthcare where cannabis has a federally confirmed medical use. For Cresco, this will immediately benefit the medical side of our business, including through the removal of 280E which also further validating the role cannabis plays for our patients more broadly this is an important step in a longer path towards normalization we look forward to the hearings on the general rescheduling of cannabis on june 29th and expect that continued progress will over time improve profitability strengthen balance sheets and expand access to capital across the industry with that i'll turn it over to sharon to walk through our q1 financial performance in more detail thank you charlie and good morning everyone as we outlined last quarter q1 serves as the baseline for the year primarily driven by our exit from california disruption in

the michigan market following the introduction of the excise tax and the fact that our growth initiatives begin last year will not be seen in our financials until q2 and later as a result we reported 151 million in revenue normalizing for our planned exit from california and the near-term disruption in Michigan, wholesale revenue was down 1.6 percent and retail revenue was down 3.1 percent sequentially in what is seasonally our slowest quarter. Improvements in cultivation yields and potency helped support pricing, offsetting broader market pricing compression and allowing us to achieve adjusted gross margins at 51 percent. Adjusted SG&A increased modestly in the quarter to support several growth initiatives, including two organic dispensary openings, progress towards our Kentucky launch and M&A. Most of that spend was offset by productivity gains across the base business and corporate functions where AI and automation are helping teams move faster and do more with the same resources. Adjusted SG&A came in at $51 million or 34% of revenue. Adjusted EVA was $33 million representing 22 percent of revenue, primarily reflecting lower revenue and the impact of operating leverage. Importantly, our cost structure is lean, positioning us to convert incremental gross profit into EBITDA at a high rate as revenue grows. We ended the quarter with 67 million in cash and restricted cash, positioning us well to continue pursuing attractive growth opportunities. As is typical, Q1 is our lowest operating cash flow quarter due to the timing of interest payments and working capital. During the quarter, we used six million operating cash flows and we invested 11 million in capital expenditures and acquisitions with the majority of the investment going towards the phase one build out of our Kentucky facility. As we look forward to Q2 with improvements across our markets following Q1 seasonality, stabilization in Michigan, and the inclusion of additional dispensaries in Pennsylvania and Ohio, we expect Q2 revenue to increase approximately 10 percent sequentially, subject to timing of ongoing integration across our growth initiatives. We anticipate maintaining gross margins between 48 to 50 percent, reflecting the continued tension between the price and compression environment and the operational improvements we've made over the past year. We expect SG&A to increase modestly, reflecting new store openings and recent M&A activity. The M&A is accretive today, and we expect that contribution to build as integration progresses, and we drive greater revenue and cost synergies. Combined with cost disciplines, this offset pricing pressure in our base business and we expect adjusted EBITDA margins to hold near 21%. With that, I'll turn it back to Charlie for closing remarks.

Thank you, Sharon. I'll wrap up with a few thoughts on how we're building Cresco for sustained growth. Q1 reflects continued progress against a clear plan and a strengthening of our growth platform. Year-to-date, we've added 11 dispensaries across Pennsylvania and Ohio, expanding our scaled footprint in core markets and reinforcing a model that we believe will drive sustained growth over time. At the same time, we see significant multi-year upside as a limited license holder in key emerging markets like Kentucky and Texas, where early positioning today creates the potential for outsized growth over time. Our margin profile and cost structure provide a foundation for operating leverage. As the industry evolves, including rescheduling we're focused on converting that foundation into sustained growth and expanding returns cresco is more focused more efficient and structurally stronger than a year ago with assets balance sheet and the team to scale the business and drive meaningful long-term value creation thank you to the entire cresco labs team for your continued execution and to our shareholders for your continued support as we build for the years ahead with that we'll now open up the call for questions.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question, and if you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Aaron Gray with Alliance Global Partners. Your line is open.

Hi, good morning. Thanks for the question. Nice to see momentum picking up for the industry and correct uh let's want to talk about more on the pa stores added i know it's in line with your desire for more depth i'm curious to what factors such as maybe pricing or timing made the right asset at the right time and whether a higher expectation for adult use to begin in pa also influenced the decision good morning aaron uh thanks for the question so yeah you know pennsylvania is one of our main states right so anytime we have an opportunity to create additional depth.

As I mentioned, we're the branded share leader in the state. And with the additional stores, that'll also put us into a leadership position from a retail footprint. So we've found, as others have, a lot of success in operating and competing in a state where you can build that type of scale. As far as the anticipation of adult use, that's sort of a cherry on top. You know, we do expect that the adult use catalyst will come at some point for Pennsylvania, and this definitely positions us very well to be very competitive when that happens. So we're excited about the transaction.

Okay, great. Thanks. And given the two-phase approach taken on rescheduling, how do you approach making more meaningful changes to the business, given we should be getting a lot more color on rescheduling for the whole plant, as well as guidance from Treasury in the next six months or so? Is it just realizing that 2-A-D benefits near-term and awaiting more notable changes once there's more clarity, or are there steps you can take to ensure your best position to take advantage of such a new lace screen, banking ops, or otherwise?

Yeah, I think the answer there is kind of all of the above. Starting first and foremost, just really excited about the movement. This is the first substantive reform that the industry has achieved at a federal level ever, right? And the one thing I want to make sure everybody takes from this is, you know, the conviction of the administration to see this through. You know, when you look at the timing between the executive order and when this final order was issued from the DOJ, that was four months worth of really intense focus and evaluation and learning that the administration went through. It relates to the nuances of cannabis. It is easier said than done. And so I think what we could take from this phased approach to it is, you know, it seems the true intent by the administration was to do this as expeditiously as possible, but also make sure it is as defensible and durable as it can be. And I think that's what we're seeing with the two phased approach. As far as how we're looking at the business, it's still early. We are definitely in learning and evaluation mode. We are expecting additional color and guidance to be coming from multiple departments of the administration here. And, you know, I think the application for the manufacturing part of the business just came out a couple of days ago. So it's still too early to describe exactly how this is going to unfold and how we're going to approach it. But just know that we're all over it. We're very excited about it. And we're going to make sure that we put Cresco in the best position possible based on the structures that are eligible and the strategy behind it. So very, very exciting development for the industry and for Cresco.

Okay, great. Happy to see the moments federally and some great moments from you guys at the state level. I'll jump back in with you. Thanks, Aaron.

Your next question comes from Bill Kirk with Roth Capital Partners. Your line is open.

Good morning, everyone. I want to keep going on what Aaron was just asking. And, Charlie, I don't think you touched specifically on retrospective 280E relief. And my question would just be, when you're making operational or investment plans and decisions and allocations, how do you account for such a large variable out there with such a wide range of outcomes?

Yeah, that's a good question, Bill. So, it is, right now, it's still too early. It's great that we've got sort of the encouragement, I think is how it was described in the rule for the for the for Treasury to take a retrospective application to prior tax years, which would be which would be not only wonderful, but I also think appropriate. But then we don't have that next level of guidance or interpretation or final position from Treasury or the IRS yet. So it is still a variable. And to your point, it's a big variable. But I would also say we're coming at it from the perspective of we did not have rescheduling or that encouragement 20 days ago. And so we've got a business and a strategy that's built for that scenario already, and we will continually evaluate how we will adapt or modify both strategy and structure as more information comes out. And we expect that to happen, you know, just like everything else here, as expeditiously as possible. So we'll keep our eyes open and we'll react.

Thank you. And Sharon, I believe you said 2Q revenue expected to be plus 10% sequentially from 1Q. If you were to exclude the 11 new locations, the 9 Pennsylvania, the 2 Ohio, if you excluded those contributions, what would the sequential 2Q over 1Q revenue number look like?

Yeah, when you look at the base business, we're still seeing growth in that low single-digit sequential growth from Q1, and then the remaining would come from the additional growth initiatives.

That's perfect. That's what I was looking for. I'll pass it along. Thank you, guys. Okay. Awesome.

Thanks.

Your next question comes from Kendrick Teague with Candacor Genuity. Your line is open.

Thank you, and good morning. Charlie, just with respect to Pennsylvania, obviously a very impressive footprint and looking more impressive now with the MSA agreement on those new stores, but could you give us some indication as it relates to the amount of current excess capacity you have, so the readiness for adult use in rooms you could potentially be turning on for adult use and perhaps the spend required to get you there if we were to see movement finally on adult use in PA? Sure.

Hi, Kendrick. Yeah, Pennsylvania, as it relates to sort of additional capacity for an AU scenario, we do have additional capacity in the footprint. I would not say that it is enough to support full adult use at maturity, but we also have the opportunity to expand our cultivation footprint in that state. So we're putting ourselves in a position to manage that as effectively as possible. And this is something that we've done in other markets, too, when they have potential catalysts in their future but haven't become actuals yet. And making sure that we've got that retail footprint in place was priority number one. So, again, really bullish on not only the opportunities in that marketplace but the footprint that we have there. Greg, do you have additional details?

I think what we're excited about for Pennsylvania is that adult use will be a tremendous growth vehicle. Flexibility is, as I said, we have techniques that we have not put into place in Pennsylvania to continue to drive more grams per square foot out of our facilities as needed, but also how we think about retail assortment between first brand and third brand as well as more third brand comes online for adult use will also be a lever we can pull to ensure that we're ready to go as the market rolls out.

Thanks, everybody. That's your color. Just a quick further one in the context of scheduling discussions. Could you provide or refresh us on RASPA center revenues that are medical and medically focused? A number of your peers have taken the opportunity in the context of the researching headlines. It would be useful to be able to handicap your share of medical if you're willing. Sure. Sharon will take this.

Yeah. Hey, Kendrick. I would say roughly approximately 50% of our revenue comes from medical, but that's really not – I would just take that in consideration, though, when you're thinking about the 280E impact. That's not really a proxy, per se, for how that'll play out, right? Obviously, there's a lot of work that has to still be done around costs and how that gets dizzied.

I appreciate that and totally understand it's just useful as some sort of a proxy or measure. Just a quick final one on Michigan, you called out disruptive in quarter as expected but I think Sharon in your commentary you also mentioned expected to stabilize is that just the broader market reset and stabilization or are they levers as you as Cresco are pulling to sort of facilitate the stabilization in your results of the Michigan impact?

You know what I think Greg should take that one?

Yeah, I think, look, the government intervention that happened in Michigan definitely shifted the market. And as we look at it, this tax has to be shared end-to-end in the state overall. You can't have it as the manufacturers and the retailers are absorbing that impact alone. And given that Michigan continues to have the lowest price of any state the u.s there is room for prices to go up in that market so we need to get this flowing through to the whole system end to end i think ultimately what you're going to see now is you have manufacturers and retailers who are going to be opting out because of the absorption in their margins and just can't operate that will start to drive some consolidation and efficiency in the state which should ultimately help um the situation we're seeing but as we look at q1 and now looking into q2 it really is not a demand problem we saw a lot of retailers load up on inventory uh in q4 to get ahead of the the tax coming through um and in q1 they're now selling that inventory in some cases they may have bought in low potency aging product so it's taking a little bit longer for it to flow through. And even if you look at the post-420 sales, they're still challenged, but the rate of challenge is getting better. So that gives us a little bit of a glimpse of what the next couple of quarters are going to look like. Still tough overall. And so as we look at our footprint, Michigan is less than 3% of the total. So we've got to find opportunities elsewhere to make up for that toughness that will happen.

But we are encouraged of what we will see in Michigan and where we can find growth elsewhere in our portfolio that's great thanks so much i'll get back in queue thanks henrik your next question comes from pablo zwanek with zwanek and associates your line is open thank you and good morning everyone uh charlie in the in the press release and in your scripts you use the word normalization um after the skating of medical what do you mean exactly by that You know, I mean, really, it's any level of reform.

Keep in mind to have a scenario for any industry where you're legal in 40 states, but still illegal at a federal level, that is not a normal situation. So, reform at a federal level is furthering the normalization of the industry, and we're not only encouraged by the first step here, but we're really excited about future steps.

But do you really expect normalization as you defined it in this administration?

Sorry, could you repeat that?

No, as you're defining, sorry about that, as you're defining normalization, and I think I understand what you mean, do you believe that we can have normalization in this presidential term?

Oh, I do. I think we saw phase one of it with the moves and the rescheduling as it relates to medical So I continue to be really encouraged by this administration's not only approach, but their commitment to following through on the positions that were stated before this administration took office. You know, without question, these were campaign statements and commitments that were made, and we're seeing them come to reality. So I'd be surprised if anybody wasn't encouraged by what they're seeing.

Okay, thank you. And look, just to follow up on the same topic, A lot of things are not clear yet, right? And there's this debate about what the DEA decides and what the state regulators decide, right? So, for example, you know, the ability of the companies to export, is that something left to the DEA or to the respective state boards and regulators? And by the same token, even if these companies become fairly legal and, let's say, other companies want to take equity stakes in them, NASDAQ listed companies, is that less to the states to decide or is it less to the DEA?

I think, overarchingly, it's too early to confirm one way or the other on how that question will play out. What we know right now is that the current federal position is almost a deferral or an incorporation of the state regulatory and licensing structure. So I think that's the first step that anybody should take is if it's incorporating the state's approach to medical cannabis, then those are the parameters under which you would be federally legal. So until that change, I think that's the first sort of note in the evaluation of whether or not exporting is possible. You have to – we have a limited amount of information that we've received so far, and what we have so far is just an incorporation of state structure. But we anticipate more clarity to come in the weeks and months ahead.

Thank you. I want to add just one more. I mean, obviously, congratulations on the Pennsylvania transaction. Just to be 100% clear, in the second quarter, would that still be MSA, or at some point you can start consolidating those nine stores in your revenues? And on the same topic, is there an opportunity for something similar in other states? I realize that the caps vary by state, but could there be an opportunity either with social equity stores or with MSA agreements in other states in your footprint?

Yeah, so as far as the regulatory approval, always tough to handicap timing. We are hopeful that that will occur in Q2, likely towards the end of it, but we do have the MSA structure in place. And as it relates to other markets, it's possible each one of these markets is different, so you really do have to look at the specific parameters and language that's associated with it. And Greg, do you want to add more context?

I'd only add that we are encouraged by our growth initiatives. I think what we've said on previous calls is that we think we've built something very special at Sunnyside that has some capabilities that enable that retail to win. And what we're finding is that licensed owners are increasingly interested in partnering with us to get access to those capabilities to help them run their licensed retail. So as we look at, Paula, to your question, other states, absolutely. I think you can take the Sunnyside model and partner with a licensed owner. in a state that helps them run their retail more efficiently and, of course, helps us, right, because we're getting to continue to build out that platform through partnerships with other owners.

Thank you.

There are no questions at this time. I will now turn the call back over to Charlie for closing remarks.

Great. I want to thank everybody for their time today. And again, want to thank the Cresco team for everything that goes into preparing our organization for, you know, the bright skies ahead. So look forward to our next call and we'll talk to you then.

That concludes today's call. Thank you all for attending. You may now disconnect.