TPCO Holding Corp.

Thank you, operator, and thanks everyone for joining the call today's. During today's call today, I'll provide a high-level overview of some of our successes during the first quarter and then I'll turn the call over to a newly appointed Chief Operating Officer, Rozlyn Lipsey.

Let me say that again, our newly appointed Chief Operating Officer, Roz Lipsey, and provide a review of the progress we made over the curse of the quarter, our strategic goals, and the initiatives generated in partnership with Gold Flora. Then, Mike Batesole, our Chief Financial Officer will review our first quarter 2023 results in further detail.

Following this, I'll provide a brief overview of plans for 2023, and then I'll turn the call over to our questions. The best competes in our market and our position ourselves as a long-term leader in California, we chose to undertake a significant evolution in our business model.

This included a movement way from high volume, but low margin wholesale businesses, and low value segments, which focus our energy and our efforts to establish ourselves as a premium brand builder and consumer focused companies. I am pleased to share today that we have done great work with our teams to accomplish some really great results.

These results are starting to have a meaningful impact on our financial results. We actually saw initial signs of this success in our full year 2022 results.

And now, in the first quarter of 2023, we achieved record growth margin. This would not be possible without the significant strategic shifts that we made, and I want to thank the teams sincerely for their great work.

Now, the work started when I arrived here, and I can tell you that I've been incredibly impressed with their efforts. I'm incredibly proud of what we've accomplished together and I want to be very clear here that work is not completed.

It's not finished, but we have built a really strong foundation, and now it is time to accelerate our pathway to possibilities. We can achieve this through our continued focus on building authentic brands, our premier retail experiences for consumers as well as optimizations of our operations through our transformational merger vehicles with Gold Flora.

With this said, I'll now turn the call over to Roz Lipsey, who will take us through those plans. Thank you, Roz.

Thanks, Troy. It's great to be here with all of you today.

As mentioned, we're currently working on several exciting initiatives, and I'd like to walk you through some of our most recent developments. Our expert brand building and omni channel retail network remain a top priority for us.

And to that end, we're pleased to announce the extension of our partnership and licensing agreement with Maria by Santana. Maria is a top-selling celebrity influence brand in California, inspired by Carlos Santana's Latin heritage and dedication to spiritual well-being.

This brand collaboration perfectly aligns with our values, as it is developed by authentic industry leader, who is committed to providing premium products that connect with consumers. Recently, our teams gathered to celebrate the launch of Maria's new line of solventless 10 milligram Hash Rosin Gummies, made with all natural ingredients and available in flavors such as guava, prickly pear, and raspberry.

The new gummies are now available at our retail stores across the state. We also recently launched a new brand called Cruisers, which combines our top-performing [indiscernible] brands into a single line that offers premium cannabis products at consumer-friendly price points.

Cruisers will be the best price offering in every category of participates in, and following its launch is performed exceptionally well. In fact, in the three-week period following its launch, Cruisers became our top-performing brand by revenue across our entire retail network, and continues to remain our top-performing brand by revenue and units.

This new consolidated brand has also allowed us to reduce our overall SKU count by 30%, increase our gross margins and reduce our cost of goods sold. We are very pleased with the Cruisers' launch, which remains ahead of our original forecast.

Brand-building will remain a key area focus for our team, and we look forward to sharing additional developments throughout the year. During 2022, we significantly optimize our operations to reduce costs and improve profitability.

This enabled us to create a platform that was focused on our areas of expertise and our best valued assets. With our announced combination with Gold Flora, we have an opportunity to bring together two operators with significantly complementary strengths to further accelerate our growth.

As shared in our announcement on February 22, 2023, it is expected that our combined company can achieve between $20 million and $25 million of annualized cost savings, thanks to it's comprehensive vertical integration. Our initial integration work has begun, and we are leveraging the enhanced scale and supply chain optimization to further drive efficiencies.

We've already begun to capitalize on benefits of Gold Flora's vertical integration, including initiatives such as sourcing specific strains, for more genetic directional brands, to deliver enhanced consistency and predictability to consumers. We've also moved [indiscernible] in certain pre-roll productions of Gold Flora's production lines for cost containment and margin improvement.

Furthermore, we've shifted product to R&D and innovation to Gold Flora's platform to accelerate our capabilities and improve timeframes for the development of brands. Through the implementation of recent measures, we've yielded approximately $21 million in annualized payroll cost savings from the beginning of 2022 to date.

We're off to a strong start, and I look forward to providing further updates on the next call. Thank you, everyone, for taking the time to join us today.

Now I'd like to turn the call over to Mike, who will discuss the financial results of the quarter. Mike?

Thanks, Roz and good afternoon, everyone. As a reminder, the results I'll be going over today can be found in our financial statements n MD&A, contained in our quarterly report from 10-Q.

All figures are in US dollars. It should be noted that we are a US resident with the SEC, and as such, our financial statements are prepared in accordance with US GAAP.

Q1, 2023 net sales were $18.1 million, compared with $22.4 million in Q1 2022. As we have previously shared, we expected top line revenue to be somewhat impacted as we execute on our goal to improve profitability and optimize our operations.

Q1 2023 gross profit improved by 15.8% to $7.8 million, resulting in record gross margin of 43%, compared to $6.7 million, or gross margin of 30%, in Q1 2022. Significant improvement in both gross profit and gross margin was a result of our strategically led business transformation in 2022.

To that end, sequential gross profit improved by 17% from $6.7 million in Q4 2022 and gross margin improved by 30% from Q4 2022. Q1 2023 total operating expenses were $22.1 million and decreased by 43% from $38.9 million in Q1 2022.

Q1 2023 adjusted gross EBITDA loss was $9.3 million, a 57% improvement from the loss of $27.1 million in Q1 2022, as well as a 35% sequential improvement compared to the adjusted EBITDA loss of $14.4 million in Q4 2022. We ended the quarter with cash and cash equivalents of $76.1 million, as of March 31, 2023.

Overall, I am pleased with the strategically led work that the team has accomplished and with the improvement in our quarterly results. With that, I will turn the call back over to Troy.

Thank you, Mike. Before we open the line for questions, I would like to just take a moment to discuss our plans for 2023.

Our focus continues to be on improving gross margins and profitability. With the industry evolving and California maturing, we have a unique transformational opportunity, available through our merger with Gold Flora.

Together, we can leverage Gold Flora's premium indoor cultivation, their proprietary genetics, their supply chain management, combined with our proven brand building expertise and our Omni channel retail platform to really drive scale to become the top operator in the state. Now we strongly believe this merger will be the best-drive value for our shoulders, better serve our consumers, and position ourselves for long-term success.

We are incredibly excited for everything that has to store for 2023. With that said, I would like to open the call for questions.

I will turn it over to your operator. Thank you.

Thank you for taking my questions, I apologize for the technical difficulties there. So you called out $20 million to $25 million in cost savings between the merger, you identified a $21 million from your cost structure thus far.

Can you just comment on if you expect Gold Flora, to contribute to any of that cost savings and if sort of what to expect on the Gold Flora fund? Thanks.

Yeah let me start Eric and then I'm going to ask both Mike and Roz to fill in some color here. But yes, we expect that two combined companies to contribute to the success of our value that we are creating as an organization.

If you think about it, there will obviously be human capital savings on both sides. But importantly, as we're thinking about the combination of our assets, this gives us the opportunity to drive a lot of efficiency across our organizations.

Importantly, as you are aware, Eric, because you follow our business, we actually decided to opt out of some capabilities or the course of the last year to invest our resources in another area. Eric's cultivation, manufacturing, supply chain, well, the great news is that those are capabilities that Gold Flora has leaned into.

And so we're expecting savings across the board based off of those synergies between our two organizations. So all in all, the savings will come from both organizations combined and there will be a combination of people resources, but importantly, efficiencies that will be driven by really saving some of the business that will be really important.

Eric, I'll also allow both Mike and Roz to come in on any operations that information can provide as well.

Yeah, so let me just clarify one thing, Eric. So I think that's a $21 million net savings, that's already actually been realized.

So there will be additional savings outside that I think was what Roz was trying to move to. For instance, we had a payroll savings of a 7% over the quarter in TPCO alone.

And so what we're doing is we're looking at both businesses and looking from an expense standpoint. We're looking at both businesses and then from a functional standpoint, we're doing that and Roz is actually the lead from the TPCO side.

So I'll let her give a little bit more color to that.

Hi Eric. So yeah, as Mike was saying, I think we're looking at integration right now, kind of as a three phase approach.

And we're in kind of we're in phase one right now, which is capturing synergies between the organizations. He mentioned the 7% reduction in cost savings and we're in Q1 and we're moving certain outsourced capabilities that Gold Flora is ready to absorb really to contain cost and improve new coal margins, like what I had spoke about with the production of vapes and certain pre-rolls.

And then in like our phase two, which would really occur around the time of closing. This would entail more distribution and really merging our sales teams for a stronger account and territory footprint.

And this coupled with really cross-selling our first party brands into each other's stores, creates a lot of wide space opportunity for a revenue and margin enhancement in the new coal. We're excited about that.

And then really the phase three is -- that includes a month kind of subsequent to the close and we'll be looking at deeper actions in corporate expenses, like combining insurance and things like regulatory costs. And so we've been -- we have a plan in place to address these things with deadlines attached and thus far we've seen good momentum from both organizations working together to achieve it.

Thank you for that color and could you just comment on any sales trends that they're already going to call out with them a Gold Flora portfolio? Thank you.

Mike, do you want to tackle that?

Sure Eric. Could you just say that one more time.

I am going to make sure I answer the question you're asking.

Yeah, sure. Just wondering if there's any sales trends on the Gold Flora side of things to call out?

Sales trends. They're actually trending.

So you're talking about the retail and cultivation and that type of sales trend. Is that what you're talking about?

Yeah, just because, if there's any trends worth calling out, that means sort of...

Yeah. Okay, yeah.

So they're actually, yeah, sorry about that Eric. Yeah, so their business is actually -- they're trending up, they're building out cultivation now.

So in 2022 there was a pretty substantial investment in CapEx to build out phase two of their cultivation facility and so those rooms are starting to come online now. And so we should see improved yields and improved volume moving through that.

And it's a strong market. Their flowers [ph] are very strong.

They're a big demand for it. And so I think that from a cultivation side, you'll see strong, they've just hired a new chief revenue officer who is highly skilled.

And I think we'll work to organize both the whole site, sale and retail channels of their business. And so I think that their positioned well and the investment they've made in 2022 should come to fruition in 2023.

Thanks operator and I want to thank all of the members of The Parent Company for all of their great work. Not just this quarter, but over the course of the year, can't really since I started my tenure.

Thank you for everything you've done. I'm sincerely proud of everything that we achieved together during this time and we cannot have done that without you.

So thanks to everyone who joined us today on the call. We're looking forward to sharing our Q2 results and progressing against our strategic initiatives.

Thank you for joining us today and have a great day.