Well, good morning. Thank you all for joining us. So my name is Brian Nagel. I'm a Senior Equity Research Analyst here at Oppenheimer, covering consumer growth and e-commerce. So this is day three of our 26th annual Oppenheimer Consumer Growth and E-commerce Conference. We very much appreciate you all tuning in. So I'm pleased to announce or introduce our next presenting company, GrowGeneration. I've had the pleasure of covering and interacting with GrowGeneration now for a very long time, very dynamic, interesting business model. We have two of the company's senior executives, co-founder and CEO Darren Lambert and CFO Greg Sanders. So, gentlemen, thank you for joining us. Thank you, Brian. So we're going to structure this as a informal fireside chat with me asking questions and the GrowGen team responding to those questions to the extent there are questions from the audience to send them through the chat and we will be happy to work them into our conversation. Guys, I thought when we start, before we talk about specific dynamics at Grow Generation, I'd love to just begin, kind of a theme we're having with this conference is just the overall health of the consumer, what you're seeing, and any impacts lately upon the Grow Generation operations from the health of the consumer.

Sure, Brian. One of the most important changes that you've seen at GrowGeneration over the past four years is that we're no longer primarily dependent on the retail consumer. Historically, investors viewed us as a hydroponic retail chain, serving hobbyist growers, small operators, and also the consumer. Today, our business is increasingly driven by commercial cultivation, wholesale distribution, proprietary brands, and B2B solutions. While broader economic conditions certainly impact spending behavior, our customers are focused on improving yields, lowering product costs, increasing efficiency, maximizing profitability. Our products, our proprietary products such as Drip Hydro, Charcore, Power SI, directly help customers improve operating economics. As a result, we believe our business today is more resilient and less dependent on discretionary consumer spending than it was several years ago. So I guess the key takeaway, Brian, Grogen has shifted from a consumer discretionary exposure toward the commercial solutions model, which is not as affected by today's economy.

No, it's very helpful, Darren. And it's a perfect segue into the conversation on Grogen. So I've had the pleasure of studying very closely this transformation that's happening, which you just alluded to, the transformation of the Grogen business model. I'd love to go into more detail, especially for those who are maybe less familiar with the GrowGen story and particularly the new dynamics. Discuss the transformation you're undertaking. You're going from point A to point B, but importantly, where are you in this transformation? And as investors, how should we think about the financial ramifications of this significant transformation of the GrowGen model?

You know, we started GrowGen back in 2014. And I guess the business model and our contention back then was, you know, as the cannabis business grows, that consumers are going to be growing plants in their backyard, cannabis plants. You know, we embarked on this incredible growth strategy, you know, building GrowGen from a million-dollar business on the sales side of it in 2014 to we peaked out in about $425 million in 2021. You know, we built, you know, from three stores, our initial three stores, you know, we built that up to 65 stores, you know, over a million square feet of space around the country, you know, transacting over 100,000 transactions a month. And, you know, as the dynamics of the industry changed so dramatically, we had a pivot. So over the last several years, really, we've transformed GroGen from a retail-focused operator into a higher-margin, technology-enabled B2B platform. We reduced operating expenses significantly. We optimized our store footprint and inventory. We dropped inventory from almost $130 million down to $40 million. We consolidated distribution. We strengthened our balance sheet. We invested in systems including CRM, ERP, WMS. We now have rolled out commercial portals that use our commercial warehouses to ship products directly. When you look at our remaining 19 locations around the country down from 65, what you've seen really is there were marketing hubs and distribution hubs really for our commercial customers as opposed to serving retailers. They're closed on weekends, you know, 90% of them. And what you're also starting to see right now is we've built this incredible commercial team at GroGen and a technical team out there that's out on the street looking for business as opposed to waiting for business to walk into our stores. You know, at the same time, we've built a portfolio of proprietary brands from under 10% back in 2021. It now represents approximately 37% of cultivation and gardening revenue. year-end target of 40% this year, and we believe that number probably goes into the mid-40s to 50 next year. Looking forward, our priorities are straightforward. We're continuing growing our proprietary brands and continuing to roll out new ones, and we believe a lot of them in the early stage of launch. We're expanding our commercial market share. We're increasing wholesale distribution. um we're growing our lawn and garden channels and specialty ag we believe that vertical is incredibly powerful right now the tam on the lawn and garden in um the ag space is you know far the dwarfs what we have right now in the cannabis space but cannabis still is you know our bread and butter and you know again it's growing uh we're pursuing international opportunities we've recently signed some contracts to start delivering our products, just Grogen proprietary products into Canada, into Europe, into Latin America. And we believe that'll be a fast-growing part of our business. And we're driving sustainable profitability and cash flow. So we believe we're still in this early transformation. And you're starting to see it in our numbers. And I guess key takeaways, Brian, we're becoming a branded product and solutions company, opposed to just that typical retailer that's, you know, waiting on the consumer to walk into the stores. So we couldn't be any more excited of the transformation. I still do believe that grow generation right now is a stronger business than we were in 2021 when the stock was $60. Our proprietary brands are taking over the industry, you know, and we've pivoted with the industry. And I think right now, You know, when you look where we are in such the early growth cycle of the cannabis industry, I think lawn and garden, I think specialty ag and with the products that we're starting to bring into big box and into the distribution channels, I think you're going to see a different business, you know, going forward through the rest of the decade and probably, you know, again, you know, probably for many years to come.

That's very helpful, Darren. So let's just talk. I want to make sure we understand clearly the difference in the consumer of grow generation today versus the consumer back in the prior business model.

Yeah, I think, you know, as we spoke, you know, we had 100,000, you know, transactions, you know, again, I think even a week back then. You know, at 65 stores, you know, we had stores doing 200 transactions a day. You know, we had 800 employees. We're down to 200 employees right now. And we're growing year over year. We just grew two quarters, you know, year over year. Our customers right now are the large, you know, multi-state operators, large single-state operators. You know, we're representing 90% of our businesses on the business-to-business side of it. You know, we used to rely on the business-to-consumer side of it. And the business-to-consumer side of it has changed dramatically. When you look into wine and spirits, you know, people growing wine, beers, it's just a very small minutia of the industry. And what we've also seen through the growth of our private label brands, that these brands, you know, have tremendous, tremendous legs, you know, going into lawn and garden and going into specialty retail and into ag. It's their best of breed. And what we always say is if you can grow a cannabis plant, you can grow any plant in the world. It's the most difficult plant to grow. And the products that we're launching are, you know, again, from a price point are incredible. You know, we're selling it to Home Depot right now. We're selling it to Lowe's right now through the Harvest Company. Charcore is the fastest growing cocoa brand in the country right now. And you're seeing that with all our brands. And, you know, the interesting and exciting part, as we'll talk about later, is we still believe these brands are in such early stage of launches. You know, we're talking mid 40 margin business opposed to, you know, high teens that you're seeing with distributed brands. So, again, it's something that makes us tremendously excited. I think we pivoted, you know, back in 2021, when we saw, you know, again, Wall Street and, you know, again, the industry changed dramatically, built out too quickly. um and you know again the consumers walked away they just it made more sense you know going to a dispensary than growing your own and um i think we did a tremendous job when we start looking you know at the competition around the industry we'll talk about after too that we've pivoted at the right time sir greg i'd love to get you in the conversation you know you're you know as the head of the financial piece of this this model you know how how do you view, you know, Darren's talked a bit, you know, a lot about the, you know, the improved

efficiency of the business model, but from an actual perspective, how much more powerful business model now under this new operating model?

Yeah, that's a great question, Brian. You know, over the last several years, we've taken the deliberate approach to resizing the organization and aligning our cost structure, you know, with the realities of the current cultivation market. Our objective was not simply to reduce expenses over the last few years, but to create a leaner, more efficient platform capable of generating improved profitability across a range of market conditions. I think the results of those efforts are becoming increasingly visible in our financial performance. Throughout 2025 and into 2026, we meaningfully reduced our operating expense base through initiatives that included store rationalization, organizational streamlining, supply chain efficiencies, and a continued focus on disciplined spending. Those actions have lowered our fixed cost structure and improved our operating leverage over the business. As a result, we reduced expenses in 2025 compared to 2024 by around $30 million and reduced total expenses by closer to $60 million over the past four years. And because of that, we've been able to demonstrate improving profitability metrics, even in a market that remains challenged from a demand perspective. We forecasted positive adjusted EBITDA in the second quarter of 2026 and expanded margins through a combination of proprietary brand growth and operational efficiencies. Importantly, we've achieved these improvements while maintaining a strong balance sheet and continuing to invest in strategic initiatives that support future growth. What we're particularly encouraged by is that many of these cost actions are structural rather than temporary. The benefits are embedded in how the business operates today. That means as the industry conditions improve and revenue growth returns, we believe a greater percentage of incremental gross profit has the potential to flow through to the bottom line, which wouldn't have been the case several years ago. So, while we remain focused on further operational improvements, we believe the work that we've done so far has positioned GroGen to be a more efficient, more resilient company with a significantly lower break-even point and a stronger foundation for long-term profitability.

That's very helpful. So, on the cost side, the cost infrastructure now is right and basically where it should be poised to lever as the growth returns.

Yeah, that's exactly right, Brian. And I think the big key over the last several years is we've reduced our store count from near 70 in the end of 2021 to less than 20 at this point today. So we've reduced expenses, like I mentioned earlier, close to $60 million over the last several years. And when you look at the business, I think it's positioned sustainably for long-term profitable growth, largely due to the store reductions that we've had in place, in addition to the headcount reductions and other improvements that we've made across the operation.

So, Darren, from your perspective, what needs to happen in order to really reignite growth, sustain growth, and grow generation than maybe in the sector more broadly?

You know, I think you're seeing that right now, Brian. You know, again, we just had two quarters of year-over-year growth. You know, hopefully, you know, the second quarter will be the third. So, I think we are reigniting growth. And we're doing that with, you know, again, you know, as we said, you know, almost 40 less stores. Every time we close a store, you know, we're losing 30 to 50% of the business coming out of the store on the consumer side of it. But we are starting to pick that back up. You know, we've done an extremely large amount of work with our portals right now in distribution. You know, through our distribution hubs and our portals, you know, consumers that used to shop with us can now still shop with us. They can go online, order whatever they do need, and we ship it right out of our warehouses. So I think that we've started to take care of that side of it. So when you look really at the future drivers of GrowGen, it's our private label brands. You're talking about, you know, again, as I said earlier, you know, changing, you know, mid-teen margin business into, you know, mid-40 margin business. But what you're also seeing is the stickiness of it. You know, when people are buying, you know, Charcore and Drip and our brands, they're usually buying full portfolios from us. And especially the larger players in the industry. So, you know, the growth levers right now is, you know, you have the cannabis space that's always been our bread and butter. But you're starting to see right now growth drivers moving into lawn and garden. You're starting to see, you know, small, small ag. You're starting to see overseas. But that's going to take time. You know, we're going off an extremely small base right now. But, you know, again, when you start seeing the customers that GrowGen are starting to pick up right now, full facilities, full customers, we haven't seen that before. You know, another growth driver that you're going to probably see throughout the rest of the decade is CapEx is coming back into the industry. I've spoken about it at length, that all the builds, all these large grow facilities that came on board from 2018 to 2021, their equipment needs to be replaced. And with the shoring up of balance sheets and things of that nature right now, we're starting to see more CapEx coming through GrowGen than we've seen in a while. And the exciting part about CapEx is when you're working on CapEx and initial builds, you know, they're usually going with GroGen for a whole suite of products. So it's just not that build. It's the consumables for years to come. And that's always the exciting part about CapEx. When you get the CapEx builds, you also get the consumables for years and years and years. It's, you know, kind of like the razor and razor blades. You know, you buy the razor, you got to buy the razor blades. And the consumable products are higher margin products, products that people need on a weekly, monthly basis. So, you know, that's where growth is coming from. You know, and I think we've hit that bottom number, Brian, you know, with all the store closings that you've seen out of GrowGen. You know, we have lost business from closing stores. Some people, you know, there are still consumers that don't like computers, especially in the cannabis space and the lawn and garden space. and some products are extremely bulky to to ship and it gets expensive there are people that still you know still have cash in their pockets and want to spend cash uh you can't spend cash online um there are ways to do it but some people can't figure it out um so it's still sticky in certain places but when you're starting to see even you know when we don't in our first quarter this year um i think we had 12 less stores but we still had year-over-year growth so when you took that $3, $4 million of sales that we lost and we still picked up a couple million, that's what's starting to get exciting. What's also exciting to me is back in 2024, we lost over $15 million of adjusted EBITDA. In 25, we lost $6 million. This year, we're looking to be profitable on an adjusted EBITDA basis. So we're picking up these big clunks every year, $6, $7, $8 million a year. It's going to start adding up going through the decade. And we obviously don't see it stopping. So that's what excites me right now. I think it excites our team. You know, we have taken typical store workers and replaced them with technical salespeople, commercial salespeople that can walk into any facility in the country, whether it's cannabis, whether it's ag, and help value add. It's value add, consultative based selling. And that's the stickiness of it. You know, our guys become integrated into facilities, integrated into companies where their supply chain, but we're more than their supply chain. You know, we are making their businesses better. And the consulting side of it, we pay for. You know, we haven't been charging for consulting. We haven't been charging for, you know, that side of the business because these are groups that are adopting our private label brands. You know, we have a $50 million CPG part of our business. That's exciting. And we see that not stopping. So, you know, when you look at GrowGen in the future, it's going to be a product driven, consultative based company. And we believe products all over the world. So this is just the start of it. It's the reformation of a company that was built on, you know, I guess on the belief that, you know, everyone was going to grow a specific plant in their backyard. and that belief is gone. That's not happening. We could have pressed it longer and sat and watched the industry unfold, but we made an extremely deliberate decision back in 2021, and it was a hard decision. It was selling through $100 million of inventory that we were selling to small individual growers that don't really mesh into some of the large commercial MSOs. So we've done, you know, we had two choices back then. One was to, you know, take a 50 to $100 million write-off. The other was to sell product, you know, at a break-even to a loss that goes through the P&L and goes through margins. So, you know, we believe that, you know, you're also going to see, besides sales reigniting, we believe margins are going to reignite too. So, you know, that's why you hear certainly optimism from me, and I think optimism from anyone you speak to at GrowGen right now.

But Darren, you made, I think, a really interesting point just a few moments ago about, you know, as we think about the overall, I guess maybe say underlying demand for cannabis, right? And what I think you said was, you know, that it's gone from, you know, that small individual grower, your personal use, I would assume, to someone that says, like, I'm just going to buy a dispensary. So is that really what's happening? So the demand has just shifted, and then the GrowGen model is now shifting with that demand?

We believe it has, Brian. And, you know, again, like anything else, you know, I think what you read about cannabis coming out of the illegal growers around the country, it's just, it's not the future. The industry is growing up. You know, what people still don't want to understand is, you know, cannabis would, you know, was still, you know, recreational legal in 2014. So it's been 10 years. You know, we're just coming out of prohibition in certain ways. When you look at wine and spirits, you know, it's a trillion dollar industry, but it took a long time. Also, you know, you're talking 100 years later. So, you know, the growth that people always thought has been slower because a couple of different reasons. One has been the price drop of cannabis. You know, cannabis was five thousand dollars a pound when I started this business in 2014. You know, went to six hundred dollars a pound and you're seeing prices stabilize. So back then. People, you know, people always thought, you know, if I got to go to a dispensary and it's five thousand dollars a pound, and the cannabis is so expensive, I'll grow it myself. But what you've seen is tremendous price compression. But you're seeing every ball that's been thrown at the industry, there's not much more that can be thrown at the industry. You're seeing legalization on the horizon. You're seeing rescheduling on the medical side. You saw that come through last month. So you're starting to see tremendous efforts to push an industry that's been deflated over the last 10 years. You just saw, you're seeing your first couple listings on the New York Stock Exchange, Trulief and Curaleaf. You know, Trulief was just done on Wednesday, on today, I think. So you're starting to see the exchanges starting to pick it up. You know, next month is a, you know, next month is the hearings in front of the ALJ on recreational cannabis, you know, rescheduling. He's still rescheduling on medical done last month. So there's a lot going on right now. Most of it, you know, everything that we see is positive. Not that we're basing GroGen's future growth on, you know, a tremendous positive. You know, right now what you're seeing from GroGen is, you know, our expectations for 2026 are pretty much that nothing happens. But you're starting to see things happen right now. So, you know, we believe that it's going to be this gradual, you know, move up. in the industry and pricing and you're going to start seeing exporting into other countries. So you're going to see supply and demand and the cannabis growing, you know, we believe come back into equilibrium. So price is stabilized. And we do believe that the illegal markets are going to start disappearing in, you know, in our country, which will be tremendously helpful for GrowGen because, you know, 95 percent of our business comes from the legal cannabis growers.

Sterling, talk a bit about the brands. You know, you mentioned a few of the real key names here in our conversation so far, but I guess we just step back. How many brands do you have now? What are the key brands? How should we, as investors, how should we think about the underlying growth in that brand portfolio?

You know, I guess our key brands right now are mostly on the consumable side of it, products that people need every week, every month, you know, every day to grow a plant. And this isn't just cannabis. This is every plant in America. Charcore is our leading brand right now. It's a $25 million business and growing. It's a premium cocoa substrate business with direct sourcing out of India. It's RHP certified, one of the only cocos in the United States that's RHP certified. And we continue to come out with new products under the Charcore brand for lawn and garden, for ag. It's just been a tremendous product for us. One of the hardest parts is, you know, again, when talking about the economics, you know, it comes from India. And we went through, you know, six to eight months of 50% tariffs on our product coming in from India, which was tremendously challenging for us on a margin side of it. there's only so much price increases you can take on a charcoal, you know, on a cocoa product. So we ate a lot of it, but, you know, you know, net right now it's back down to that 10%. And, you know, so we're starting to realize profits back from charcoal right now, but it's a fast growing business and we couldn't be any more excited with it. We've recently launched, you know, something for propagation. That's the work to start a plant's life. Our cocoa coins with trays is something that you know it's a jiffy based product but we believe faster growing um and we've just seen tremendous appetite for this product and we think it's going to be a product that's you know again gonna get gonna grow for many years but we keep we continue to launch new products from charcoal drip hydro is our nutrient brand right now it's developed by growers really for growers um you know it's a million dollar a month product right now and growing and um it's it's been an incredible launch with drip um and you know changing growers appetites you know changing growers appetites for new products is tremendously difficult um you know there's three ways to do it and you have to do all three it's got to be price better yield better quality and if not they're not switching. And, you know, they have to change their fertigation systems. And again, we go through months and months of testing with these groups, especially for bigger facilities, lab testing, quality, having our, you know, technical guys go over to the facilities on, you know, on a monthly basis. So, it's been a, it's a slow process, but the process is working. And we believe, you know, DRIP has many years of growth ahead of it. So, we couldn't be any more excited bit about that. One of our new divisions out of Grogen is the Harvest Company. It extends our region to broader lawn and garden markets. It's anything you need to grow any plant. It's, you know, it's gloves, it's scissors, it's pots, it's trellison. It's hundreds of different products. It's under the Harvest Company name. You know, we have our website that anyone can go online and buy it. We sell this into Home Depot, into Lowe's, starting to make way more traction into big box. Sell it through ARID into 2,000 lawn and garden stores around the country. This was a new deal that we forged this year. But like anything else, Brian, getting into these large, you know, big box and on, it takes time. So this is our first year into it. The products are all grow gen products. They're high margin products. The packaging is spot on. And the products are best of breed and priced properly. So when you look at that, that's what's driving this $50 million division. We also have a lighting brand ION. We have probably the most recognized silicon-based product, Power SI, that sells into the cannabis space. And we also believe it'll start selling into ag too. So when you look at, you know, these brands, where we're selling them, you have the commercial sales, GroGen portals, GroGen pro portals, GroGen locations, wholesale hydroponic stores, international distribution. So all our brands will be distributed internationally and emerging into the, you know, lawn and garden and into ag. So, again, it's the biggest, fastest growing division of GroGen. And we believe it's going to be, you know, something that you hear for years to come out of our company.

That's very helpful, Darren. So I know our time's winding down here. Let's just talk this, I guess, let's wrap up on the balance sheet. Because, again, I think that's been a huge bright spot here for GrowGen and really allowed, you know, you to pursue this aggressive transformation while others have faltered. So, because how do you think about the balance sheet now, the cash position, your desire to, you know, strategically buyback stock here?

You know, again, we've got approximately 40. Greg, do you want to go over this or do you want me to? Sure.

Yeah. I mean, we do believe that one of Grow Generation's key differentiators is the strength of our balance sheet. Over the past several years, we've been disciplined in managing costs, optimizing our working capital, and preserving liquidity. While most companies in the industry have faced significant financial pressures, as a result, we maintain a healthy balance sheet with substantial liquidity at this point. And we have the flexibility to be patient and strategic in how we deploy capital. When we look at capital allocation, our primary objective is creating long-term shareholder value. We evaluate opportunities through that lens and prioritize investments that can strengthen the business and improve our earnings power over time. First, we remain focused on organic growth opportunities. That includes the investments that we've made in proprietary brands, a lot of the technology initiatives that Darren alluded to, operational efficiencies and other projects that enhance profitability and generate attractive returns on our invested capital. We believe that there's still opportunities within our existing platform to drive growth and expand margins as the market continues to normalize. Second, we continue to evaluate inorganic opportunities. Given the current environment, we believe there could be attractive opportunities to acquire complementary businesses, brands, capabilities, or assets at valuations that have a sufficient rational for the business. We do have the financial flexibility to pursue those opportunities if they meet our criteria, although we do remain disciplined in how we're looking at deals at this point in time. And then I think the share repurchase authorization that we announced should be viewed within the broader capital allocation framework of the business. We announced $10 million in authorization from our board of directors. And importantly, it's both opportunistic and multi-year in nature. It doesn't obligate us to repurchase any specific amount of stock within a defined time frame. rather it provides us with an additional tool to allocate capital when we believe our shares are trading at a meaningful discount to intrinsic value. So we're continuing to look at windows of opportunity for repurchase over the next several years. Ultimately, we're fortunate to be in a position where we don't have to make decisions from a place of financial constraints. Our liquidity ratios remain very strong and we feel good about the health of the balance sheet and have the flexibility to pursue the highest return opportunities available to us. So as we sit here today, we would generally view high return organic investments and compelling strategic acquisitions as our highest priorities for capital deployment, with the buyback serving as an additional shareholder-friendly option when market conditions weren't. So the overarching message is that we intend to remain disciplined, maintain balance sheet strength and allocate capital where we believe it can generate a great long-term value for our shareholders.

Well, guys, I think our time has come to an end. Enjoyed the conversation. Congrats on the ongoing recent success here. I look forward to watching the story continue to play out.

Much appreciated, Brian. Always a pleasure. Thank you. Thanks, Brian.