Good afternoon, everyone, and welcome to TILT Holdings First Quarter 2024 Conference Call and Webcast. Today's call is being recorded for replay purposes. A replay of the audio webcast will be available in the Investors section of the company's website approximately two hours after the completion of the webcast and will be archived for 30 days. I would now like to turn the conference over to your host today, TILT's Head of Investor Relations and Corporate Communications, Lynn Ricci. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us. Earlier today, we issued our first quarter 2024 earnings press release. The press release along with our report on Form 10-Q is available on the U.S. Securities and Exchange Commission's website at www.sec.gov, on SEDAR+ at www.sedarplus.ca and on our website at www.tiltholdings.com. Please note that during this afternoon's webcast, remarks made regarding future expectations, plans and prospects for the company constitute forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various factors which we disclosed in more detailed in our more recent 10-K filed by TILT with the SEC and on SEDAR +. We remind you that any forward-looking statements represent our views as of today and should not be relied upon as representing our view as of any subsequent date. While we may update such forward-looking statements in the future, we specifically disclaim any obligation to do so, except as otherwise required by law. As of today's call, we are presenting our financial results in accordance with the United States Generally Accepted Accounting Principles or GAAP. During the call, management will also discuss certain financial measures that are not calculated in accordance with GAAP. We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for TILT's financial results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to their nearest equivalent GAAP measure is available in our earnings press release that is an exhibit to our current report on Form 8-K that we filed with the SEC and SEDAR+ today and can be found in the Investor Relations section of our website. Joining on today's call are our CEO, Tim Conder; and Interim CFO, Brad Hoch. Following the prepared remarks, we will open our call for questions. During today's prepared remarks, we may offer metrics to provide greater insight into our business and our financial results. Please be advised that we may or may not continue to provide these additional metrics in the future. With that, I will now turn the call over to our CEO, Tim Conder.

Thank you, Lynn and good afternoon, everyone. During the first quarter, we continue to navigate TILT’s transition between operational improvement and growth. The cannabis industry continues to be impacted by trends related to hardware commoditization and pricing pressure in select markets. However, we are adapting accordingly, and the fundamentals of our business are improving despite those headwinds. Most importantly, we continue to deepen our relationships with our customers across our plant-touching and Jupiter hardware businesses as we work to further optimize our operations, address our debt stack, and position the business for future growth. Looking deeper, we are focused on improving operations across the organization by maximizing margins through product portfolio optimization, brand partner contract renegotiation, increased throughput in our plant-touching businesses, and overhauling people, processes, and technology at Jupiter. Current operations are more effectively centered around our core inhalation competencies, brands, and products, and our fixed cost base will remain relatively stable from here as we focus on revenue growth. In Massachusetts, we are investing in maintenance CapEx to improve cannabis yields, potency, and cannabinoid profiles, while in Ohio, we are preparing for adult use sales, which are reported to begin as early as next month. We have already begun to increase biomass inventory and product inputs for our in-house and brand partner SKUs. In 2023, as part of our overall strategy refinement, we initiated a plan to refocus our cannabis brand partnerships to better align with our broader inhalation strategy. We have added strong brands to our portfolio, including Level and Edie Parker Flower. We continue to look for additional opportunities to increase revenue, expand margins, drive retail door penetration, and add distribution channels. In addition to refining our brand partner strategy, we are investing in the growth of our in-house brands and contract manufacturing initiatives. We see early results of this taking shape in 2024. Touching now on each of our plant-touching markets in more detail. Massachusetts remains challenging as pricing pressure persisted in the first quarter given the increase in cultivation throughout the state during Q1. However, wholesale remains a growing opportunity as we look to increase door penetration and total points of distribution. As mentioned on our last call, we are working to increase cultivation yield to meet both the demand in our stores as well as the wholesale market. We have made investments in lighting upgrades that will produce higher quality product and greater yield on a consistent basis. And we are seeing positive early results with an increase in yield in our overhauled flower rooms of over 70%. We are selling through all A-bud that we grow and harvest and expect additional flower from our lighting investments over the summer. On the brand front in Massachusetts, in Q1 we won first place for best vape cartridge in the 2024 NECANN Cup with our Mimosa Liquid Live Rosin All-in-One Vape using our Commonwealth Alternative Care Cannabis and Jupiter/CCELL Voca Pro hardware. Old Pal and Standard Farms continue to be bright spots, with Old Pal ranking as one of the top-selling flower brands in 2023 and Standard Farms recognized as the fastest-growing brand in the state last year by Headset, a cannabis data company. In Q1, Old Pal was the number four selling flower in the state up from number 25 in Massachusetts in Q1 of 2023 and from the 11th ranked flower brand in Q4 2023 per BDSA. The three brands ahead of Old Pal are all large MSO brands. In Pennsylvania, we continue to focus on the rationalization of our brand portfolio. We recently brought our new brand partner level to market and early results from our launch in April have been strong. In fact, we added 30 more doors in our wholesale business in Pennsylvania immediately following the launch of Level, which speaks to the market demand. Although pricing pressure persists in the state, we are making real-time adjustments to our product portfolio to offset margin compression by focusing on higher margin products and customers. Level has been added to the TILT portfolio product lineup to optimize the cannabis material available to us from parting ways with 1906. We are working diligently to ensure that Level, which is one of the leading press tablet brands in cannabis, becomes a known favorite in Pennsylvania and is available throughout the state in the near future. Finally, TILT recently reached an agreement with an experienced retailer and vertical operator, wherein this operator will lend capital to TILT's Pennsylvania subsidiary Standard Farms in order for Standard Farms to construct and operate dispensaries under Pennsylvania Senate Bill 773. Under the terms of this agreement, Standard Farms can borrow up to $10.5 million, which will be used to construct dispensaries obtained via permit. The permit application window opened Monday. In Ohio, with adult use expected to go live in the coming months, if not weeks, we anticipate a significant tailwind for the market. As a reminder, we are a manufacturer and processor in the state. We have strong partnerships and a good line of sight on biomass that will be needed for the anticipated ramp. We continue to work closely with our brand partner Timeless to support their accelerated growth in Ohio from adult use. And we anticipate as much as a 3x initial increase with expected growth beyond as volume is fully realized. To summarize our plant-touching business, we are continuing to evaluate and act on a market-by -market basis. Our operations are lean and optimized, and we will continue to identify white space to enter and exploit to grow revenue. Moving to our Jupiter vape hardware business. As discussed on our last conference call, during the first quarter, we worked through certain challenges with our manufacturing partner and signed a collateral agreement to meet our business and customer needs and support larger seasonal order volumes. Delayed shipments during this process impacted our results in both Q4 and Q1. However, the Jupiter team continues to make progress on internal goals that we believe will set us up for a better year in 2024. We have introduced new hires at the upper levels of the Jupiter organization to improve our business operations and optimize for growth. This includes modifying sales processes, improving contracts, and broadening our customization work. In addition, by working with our manufacturing partner, Smoore, we started to receive the first shipments for certain product lines out of their Indonesian facility in Q1, which we believe will be a positive change for both Jupiter and our customer to address the tariffs charged on Chinese imports to the US. With respect to our product updates at Jupiter, we are still awaiting regulatory approvals for the liquid medical device, a vaporizer battery with a cartridge accessory announced in 2020 to be available through European partners for new territories abroad. This will be the first medically certified inhalation device once approved. We are also moving forward with several new products built on Jupiter intellectual property that we expect will be introduced later this year. All that said, demand for Jupiter products remains strong, and we continue to partner with many of the largest MSOs, LPs, and brands in cannabis. I'd now like to pass it over to Brad to review the financial highlights of the first quarter before returning for closing remarks. Brad?

Thanks, Tim, and good afternoon, everyone. As a reminder, all the results today are presented in US dollars and are on a year-over-year basis, unless stated otherwise. Jumping into our results. Revenue in the first quarter of 2024 was $37.5 million, compared to $42.3 million in the year ago period. The decrease was mainly attributable to lower sales volume and price compression in Massachusetts and Pennsylvania, as well as lower Jupiter average price per unit, which was partially offset by increased sales volume. For our Jupiter vape hardware business, we generated $27.1 million of revenue in Q1, compared to $29.3 million in the year ago period. For our cannabis operations, which includes Massachusetts, Pennsylvania, and Ohio, revenue in the first quarter was $10.4 million, compared to $13 million in the year ago period. Gross margin in Q1 was 17.9%, compared to 20.8% in the year ago period, with the decline driven primarily by lower average pricing relative to the prior year period. Operating expenses, less noncash adjustments for stock compensation, depreciation and amortization, and impairment charges in the first quarter decreased 31% to $8.1 million compared to $11.8 million in the year ago period. The decrease was primarily due to lower legal and professional service expenses, lower headcount, as well as lower administrative costs driven by operating deficiencies. Net loss in the first quarter was $9.7 million compared to $4.9 million in the year ago period. The difference was primarily due to lower gross profit and an $8.4 million gain on asset sales recognized in Q1 of 2023. Adjusted EBITDA in Q1 was $38,000 compared to negative $79,000 in the year ago period. The improvement was primarily driven by efficient operating cost controls. Cash flow from operations in the first quarter was negative $2.4 million compared to positive $3.8 million in the year ago period with the decline primarily related to inventory build for Jupiter as Tim mentioned earlier. On March 31, 2024, we had $3.5 million of cash, cash equivalents, and restricted cash compared to $3.3 million at December 31, 2023. Notes payable met a discount at March 31, 2024 was $59.7 million compared to $52.2 million at December 31, 2023. With that, I'll turn it back to Tim.

Thank you, Brad. The challenges outlined on our last call impacted our first quarter results, but with those challenges, there are also opportunities. We remain focused on improving the foundation of our business to generate future growth. And with multiple industry catalysts ahead, such as the recent Drug Enforcement Agency decision to reschedule cannabis, we plan to continue optimizing our business and look forward to generating improved growth and profitability in 2024 to be prepared to take advantage of the industry changes ahead. We will now take questions. Operator?

[Operator Instructions] The first question comes from the line of Aaron Grey with Alliance Global Partners.

Hi, good evening, and thank you for the questions. So first one for me, just want to talk a little bit on the Jupiter business. I know last quarter you talked about some shipment timing on the Chinese New Year, but looks about similar revenue level in the first quarter, so about a flat quarter-over- quarter. So just want to know maybe what you're seeing in terms of if there was some more shipment timing in this quarter, and you didn't get the benefit you might have been expecting, changes in frequency or sizing of some of the customers, some changes in the customer base, just in terms of a little more color in terms of the revenue makeup of Jupiter, and then growth outlook going forward there. Thanks.

Yes, thanks for the question, Aaron. Appreciate it. So yes, due to some of the shipping challenges that we had in Q4 and into Q1, we did have some lost revenue opportunities. And while the collateral agreement that we entered with our Chinese manufacturing partner Smoore temporarily increased our trade payable line to accommodate larger seasonal order volume related to Chinese New Year, the sort of subsequent drawdown on that line has been a challenge for the business and has had some impact on revenue that we will likely persist going forward through the rest of the year as we meet those payment milestones. As a reminder, the line will ultimately be paid down to I think $25 million exiting 2024, which gets us to sort of a normalized place with that manufacturer. So that is going to have some continued impact. However, it's primarily on stock customers or customers that reach out to Jupiter to procure stock as we've had to be very judicious in what stock we bring into inventory to assure that it moves as quickly as possible and we recognize that revenue to sort of pay down the line in accordance with the payment milestones. However, on the custom side, the business remains strong, the relationships with our customer base, in my opinion, have never been stronger. And while sort of brands, MSOs, LPs across the cannabis sector, especially those that are the most successful are seeing a large degree of competition, we remain confident in one, our ability to service those customers to a very high degree, and two, their ability to be successful in the markets that they serve with their customer base. So I think the outlook for Jupiter remains strong but some sort of temporary challenges from a stock revenue standpoint while we work to meet the milestones outlined in that collateral agreement that we entered into in February and address kind of our debt stack in totality.

That's helpful color there. Appreciate that. Second question for me just in terms of some of the gross margin, year-over-year you mentioned, some pricing pressure but sequentially on the gross margin. So just help us, we'll break out between Jupiter and cannabis maybe sequentially where you saw the improvement maybe on both fronts. So just help breaking out between those two segments would be helpful. Thanks.

Yes, and Brad, feel free to add any color here that I might miss but starting with Jupiter, it's really, it's product mix and how we and power shipping, right, ocean via air or vice versa. Those are the sort of two things that generally have the largest impact on gross margin, both negative and positive. And one of the things that the team at Jupiter has done a great job of is entering into long-term master services agreements with our customers to guarantee pricing and set margin on a more consistent basis than has occurred in the past, which is great for both parties, but has contributed to sort of a normalization and in gross margin, which is somewhat offset by seasonality related to Chinese New Year and needing to get shipments out of China as quickly as possible, and so sending most of those shipments via air. On the cannabis side of the business, while we continue to see price compressions primarily in markets like Massachusetts and Pennsylvania, I think as high as even 25% year-over-year, our product mix has, we've had a very keen focus on product mix to optimize for gross margin and sell through, and that, so the rationalization of our product portfolio has had some positive impact on gross margin. However, sort of reduced volume has kind of has offset that a little bit. So we have opportunity from a volume standpoint. We talked a little bit about in the script of the opportunity specifically in Massachusetts related to lighting, that increased throughput and our team's ability to sell the products that are available to them on a consistent basis will have a, should have a continued improvement on gross margin as well as revenue. Brad, anything you'd want to add there?

I think you covered it. I think the big thing on the plant-touching side is the rationalization of brands and the positive impact that's brought. One other item to know is in Pennsylvania, or in Massachusetts, we also are now, we don't have to pay an HCA agreement with our Taunton facility. So that also had a positive impact in Q1 as well. And that's where we're at.

Yes, and just for those unfamiliar with what HCA is, is the host community agreement that you enter into, municipality by municipality, to essentially sort of contribute funds to that municipality for the right to operate there locally.

Next question comes from the line of Pablo Zuanic with Zuanic & Associates.

Hi, I know you mentioned this earlier when you talked about Old Pal in Massachusetts and Level in Pennsylvania, but could you discuss how they're performing in the wholesale market and potentially share market share for either mine?

Yes, no, thank you for the question. We appreciate it. So as far as market share is concerned, we haven't talked about exact market share publicly, but as we discussed, Old Pal from a performance standpoint is number four in the flower category in the state of Massachusetts. And if I remember correctly, 11 in the state of Pennsylvania, we see more opportunity in Massachusetts to continue to proliferate Old Pal as our sort of door penetration or total points to distribution is really, probably reached its almost reached its climax in Pennsylvania with us distributing into over 90% of the other retailers there. But we're currently in less stores than we'd like to be in Massachusetts until see the opportunity to increase door count and continue to sort of build on the success that we've had already with Old Pal over the past year. Level just launched in April, so haven't seen any market data yet and only launched in Pennsylvania, but we'll be happy to report on that next quarter. And we'll continue to not just on our third-party brands or brand partners, but also our in-house brands. So yes, hopefully that should be good color there.

Yes. Thank you for that added color. Just a few more questions. Regarding Jupiter, can the new credit agreement with Smoore be implemented? It sounds like it can, but if you haven't resolved the matter of forbearance with your other creditors?

What do you mean by implemented?

As in there's no limitations on the operations and going forward?

No. So yes, so we continue to work in cooperation with our noteholders to reach a forbearance agreement. It's been a very collaborative process so far, and they're intimately involved in the business and very aligned to help the business be successful long term. As a reminder, they're also very large equity holders in addition to being our largest debt holders, as it relates to the collateral agreement that we entered into with our manufacturing partner in February, they're in first position from a securitization standpoint across the assets. And in order to get that position, that had to be allowed by our noteholders who were in first position. So what I would say is it's a collaborative process across our debt stack. I think both TILT as a company, the noteholders and our manufacturing partner are aligned in ensuring the long-term success and viability of the organization and working collaboratively to figure out exactly how to get there to sort of best meet the needs of the business and have a win-win situation for all stakeholders themselves included.

Great, thank you for that. Regarding the first apps and more contacts on the $10.5 million credit line to set up three stores in Pennsylvania, from the outside to us, 40% interest rate seems quite high. Typically, we think of new stores costing around $700,000 to $1 million, but not $3 million each. Any color that would help that line of thinking?

Yes, for sure. So just kind of backing up that's sort of why we looked for a partner like this in the first place. Obviously, like the question that you just touched on, one of our top priorities is addressing our debt stack. And as we do that and continue to optimize the business itself and grow revenue, we have a very limited cash balance, right. And that's just the reality of where our business is today. And so in order to preserve an opportunity that we see being incredibly accretive for all stakeholders, we sought sort of this creative financing opportunity to make sure that this opportunity wasn't lost to us, right. The application window, as I mentioned, opened on Monday, but it doesn't remain open forever, and we wanted to make sure that we had the ability to bring these assets to fruition and preserve an opportunity to generate capital from these assets. And to do so, that was the sort of the deal that we were able to strike. However, I think it's important to note it's not a forced drawdown. This is cash that's available to us, if we need it. And we're excited about who the partner is and the opportunity to continue to deepen an existing relationship with them and hopefully have a like and some success together in that market through those assets.

That's great color. And then the last question is, you discussed opening your stores in Pennsylvania. Are you looking to do the same in Ohio? And if so, how would you go about that process?

There's some discussion in the state of Ohio kind of led by the Independent Processors Association, about how ultimately the regulations will evolve, and license issuance will evolve through the transition from medical to adult use sales. And there's a potential that as a standalone processor, we may have access to both a retail license and cultivation license. Nothing set in stone, but it's a proposal that I think it's sort of making its way through the proper channels. And we're in support of that proposal. I think our business will continue to evaluate how deep or vertical it becomes in the supply chain, right. I think what I would say sort of at a high level is focus is important, but maintaining channels for distribution is imperative when thinking about how we continue to grow the business. So those opportunities will evaluate on a case-by-case basis, but it's exciting to see those opportunities come to fruition in the markets that we operate.

Thank you. Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to Tim Conder for closing comments. A - Tim Conder: Yes, thank you, operator, really appreciate it. And thanks to everyone for joining our call today. I just want to thank our team for their perseverance and passion in navigating the transitions that we've had to navigate over the past year. And what I would tell everybody on the call, and anyone reading this transcript, is I continue to be encouraged by the passion of our team and the opportunity that exists across the cannabis landscape. And so looking forward to reconnecting again next quarter. Thanks, everyone, for joining us.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.