Good day, everyone. Welcome to the Goodness Growth Holdings First Quarter 2023 Results Conference Call. At this time, I would like to hand the call over to Mr. Sam Gibbons. Please go ahead, sir.
Thank you, Lisa, and thanks to everyone for joining us. With me on today's call are our Interim Chief Executive Officer, Josh Rosen, our Chief Financial Officer, John Heller, and our President, Amber Shimpa. Today's conference call is being webcast live from the investor relations section of our website. Dial-in webcast details for the call have also been provided in today's earnings release, which is also available on our website. Before we get started, we'd like to remind everyone that today's conference call may contain forward-looking statements within the meaning of U.S. and Canadian securities laws. These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events and those described in such forward-looking statements. For more information on forward-looking statements, please refer to cautionary note regarding forward-looking statements in today's earnings release. I'll now hand the call over to Josh.
All right. Thanks, Sam, and thanks, everyone, for joining us this afternoon. I'll begin today with some reminders on our operating strategy for the year and highlights from the first quarter. Amber will run through our KPIs and some state-level updates before we pass the call to John for a review of the financials and balance sheet. Please turn to slide three of today's presentation, which is available in the quarterly results and events and presentation sections of our investor relations website. We introduced our operating priorities for the year on last quarter's conference call, but I wanted to remind everyone today of the key tenets of the strategy because we made demonstrable progress in several of these initiatives during the first quarter.
The CREAM and Fire priorities on slide three boil down to, first, making decisions that drive cash flow generation and profit growth, and second, growing and selling fire cannabis products, because we firmly believe that we need to have passion for the quality and value that we're providing customers in order to thrive longer term, and this needs to be core to our operations team. To help us achieve these goals over the course of the last few months, we've restructured the organization to improve operating performance by enabling our various state markets to act more independently. The decentralized approach to the leadership of our various state markets is designed to improve the speed and quality of decision-making on the ground at our facilities, which is helping us drive stronger operating and financial performance.
On slide four, we've summarized some key highlights from the first quarter, which collectively demonstrate that we are gaining traction executing our plan for the year and give us confidence that we are carrying this momentum forward into the summer. Our recent reorganization initiatives have resulted in leaner, more efficient operations. As Amber will discuss, we're seeing early signs of improvement in key operating metrics, which are ultimately focused on improving the quality and value of products that we deliver to our patients and customers. We were pleased to drive a second consecutive quarter of positive income from operations. We've now gained needed balance sheet flexibility following our recently amended credit facility and closing of a new convertible loan. Addressing our balance sheet was the single most important item to address when I started in my role.
We're prudently deploying capital expenditures against high-returning projects, and we'll continue to manage the balance sheet with our capital partners to support our transformation into a stronger operator and credit partner. These are small dollar investments that pencil out to have rapid payback periods measured in months, not years. We've also been encouraged by recent progress in Maryland and New York, and we now have better visibility on our timeline to participate in adult use sales in both of these markets, and we hope for similar with Minnesota shortly. Finally, we're making progress to simplify the organization with the divestiture of non-core assets, which we've been discussing for the past several quarters since Verano wrongly terminated our merger agreement.
We have been very straightforward with investors that we remain open to divestitures of non-core assets. We clarified last quarter that we will also remain open to divestment and strategic partnership on our core assets, given our management team and board's responsibility to review all opportunities to maximize value for our shareholders. There's been increased interest in our assets in New York recently. We've entered a formalized sales process, which has required us to treat our New York assets as held for sale on our balance sheet. This resulted in some accounting adjustments to our assets and liabilities in our financial statements for the first quarter, which will show up in John's remarks. I'd note from an internal focus standpoint, I still consider New York a core market.
We remain excited about New York, but we're also mindful of our balance sheet and liquidity, and it's been hard for us to turn a profit in the state given the restrictive nature of the existing medical market, as well as our own lack of high-quality production. However, we believe we should have a very compelling asset coming online later this year. That being our large-scale indoor cultivation facility. This should be one of the largest scale production facilities for indoor flower in New York. We believe the New York market is likely to remain supply-constrained for regulated quality indoor flower for the foreseeable future, which we believe makes this asset an attractive opportunity for purchase or partnership with a better capitalized operator.
I can't offer more specifics on these divestiture processes other than to note we're optimistic that we'll have an update on them within the next few months. I'll now pass the call over to Amber for a review of our KPIs and state market updates.
Thanks, Josh. Thanks everyone for joining us today. We made strong progress in quarter one with our decentralized structure to improving decision-making and manufacturing operations at the state level. As we noted on last quarter's call, our recently formed Weed Hustle Office is driving these initiatives forward with the help of some additional external resources. Please turn to slide five, where we've shown an update on KPIs in the first quarter. As a reminder, these represent some of the most relevant metrics we are tracking to evaluate our progress as we move forward.
We intend to provide transparency on these metrics as we execute our plan for the year and plan to be honest when performance doesn't meet expectations and explain what we plan to do about it. We are pleased to see signs of progress in driving higher volumes of biomass production and percentages of A-Flower during the first quarter, as well as strong same-store sales growth. Our inventory turns on a consolidated reported basis declined sequentially as compared to Q4, which was largely driven by the timing of production and manufacturing activity which occurred during the quarter. As mentioned previously, we've also been anticipating some modest inventory building in Maryland ahead of the launch of adult use sales later this summer.
Despite the variability in inventory turns in Q1, we do expect to see improvement in this metric over time, as improving this component of our working capital performance will be critical in improving our cash flow performance in the future. We aim to be better, but this inventory turn metric also will naturally have some variability attached to our production timing. On last quarter's call, we mentioned that we were seeing good signs of progress with record sales of our Hi-Color edibles in Maryland, as well as new monthly retail sales records in Minnesota. Since that update, we've leaned into the production of nano-emulsified gummies in all three of our core markets and expect these products to perform very well with customers and patients for the foreseeable future.
We've improved our production and quality of distillate products across our portfolio. We'll be coming to market with these new vape products in the coming weeks. In Maryland, we've also revamped our infused joint products. We're looking forward to launching new live resin joint and vape products later this summer. Finally, the quality and quantity of flower products we're producing in Minnesota continues to improve. We expect our sell-through of flower products in Minnesota to continue increasing at very competitive price points to our Minnesota patients. It's still early days in our efforts to improve the quality and efficiency of ops across our portfolio. We believe these anecdotes from the last few months position us to continue improving on these KPIs moving forward. Moving on to some state market updates on slide six.
Our home market of Minnesota remains our most important market. It continues to grow following the commencement of flower and edible sales in 2022. There is an adult-use bill working its way through the conference committee process in the state legislature now. We expect adult use legislation to pass later this month. In New York, we are continuing to balance our need to control cash burn in New York with the need to prepare for adult use implementation. This has been a challenging state market environment, to say the least, especially considering our liquidity position. However, over the last few weeks, we finally started to receive greater visibility from the state regulatory body on our participation in the adult use market.
We're now expecting to be able to open our first adult use dispensary at the very end of this year, and most importantly, the ability to sell wholesale at some point later this year. In Maryland, we also have gained greater visibility on our timeline to participate in that adult use market, which is expected to occur on July first of this year. As mentioned last quarter, our second dispensary in Baltimore has been driving increased retail sales performance as compared to last year, and we are working to improve our cultivation performance in preparation for the launch of adult use sales. We are looking forward to transitioning both of our dispensaries to co-located adult use and medical dispensaries in July, which we anticipate will be a meaningful catalyst for revenue growth and stronger profitability moving forward.
On slide seven, we've highlighted several ongoing programs in Minnesota, which reflects the hard work and dedication of our team's commitment to being a strong community partner and advocate for cannabis reform. We're very proud of our Minnesota roots and our status as a Minnesota-founded and run company in the U.S. cannabis industry. We've been advocating aggressively for a fair, equitable, and practical licensing and regulatory framework to set the state up for a successful adult use program implementation. Our support of social equity applicants includes sponsoring folks through our cannabis business accelerator. Our most recent graduate from our accelerator program stands ready to apply for licensure via social equity license in Minnesota following the successful completion of our program. Our 1937 Impact Fund supports key equity focus groups and aims to strengthen those community organizations whose constituents have been historically excluded from the legal cannabis industry.
We're also continuing to invest time and resources into our national expungement clinic programs with our most recent clinic hosted in Moorhead, Minnesota earlier this month. This work is foundational to who we are and how we support the communities in which we operate. I'll now hand the call over to John for a more detailed review of the financials.
Thank you, Amber, and thanks to everyone for joining us this afternoon. I'll provide a high-level summary of key financial metrics for the first quarter and then review our balance sheet and liquidity position in more detail. Please turn to slide eight. Our first quarter results reflected revenue growth in each of our markets, as well as continued improvements in margin performance, which was amplified by the negative performance drag we experienced last year in our former Arizona cultivation facility. Total GAAP revenue of $19.1 million in the first quarter increased approximately 22.1% compared to the first quarter of last year. If exclude last year's contributions from discontinued operations in Arizona, total revenue grew approximately 30.5% year-over-year.
Gross margin performance improved significantly year-over-year from 15.9% of sales in the first quarter of last year to 49.9% of sales. As mentioned previously, gross margin benefited from our recent wind down of operations in Arizona, as well as from increased retail sales in Minnesota and Maryland. SG&A expenses as a percent of sales also improved year-over-year in the first quarter, declining to 37.7% of sales from 59.6% of sales. As Josh mentioned, improved operating efficiency and cost controls helped us deliver our second consecutive quarter of positive income from operations and EBITDA. We no longer report adjusted EBITDA. On slide nine, we provided a summary of revenue performance in our core markets on both a sequential and year-over-year basis.
For a complete review of state-by-state revenue performance, including non-core markets and discontinued operations, please refer to our Form 10-Q, which will be filed with the SEC later today. Please turn to slide 10 for a review of our balance sheet and liquidity position. We ended the quarter with total current assets of $158.6 million, including cash on hand of $10.3 million. Total current liabilities at the end of the quarter were $95.1 million, and we had $55.1 million in long-term debt outstanding. As we disclosed last month, we recently amended our Green Ivy credit facility, which extended the maturity on our credit facility loans to April 30th, 2024, and removed the previously required amortization schedule. We also have the opportunity to hit some performance-based milestones that would extend the maturity to January of 2026.
Although the milestones are not easy performance hurdles given our history, we believe they are attainable should the operational and profitability improvements we've implemented prove to be successful, and assuming we continue to have reasonably conducive state regulatory environments. The milestones themselves are based on fixed charge ratios, so they are effectively tied to our ability to generate profits and cash flow consistent with being a better credit. On slide 11, we've provided a summary of debt outstanding as of the closing of our convertible loan facility, which we announced on May 1st. We have a total of $60.4 million in debt outstanding related to our Green Ivy credit facility. $4.3 million of this balance is related to our acquisition of our dispensary in Baltimore and has a different maturity date of November 19th, 2024.
Our other debt of $3.1 million also primarily relates to former M&A activity with maturity dates at the end of this year. As we disclosed earlier this month, we've also closed on a $2 million initial tranche of a $10 million convertible loan facility. This facility is expected to have a monthly draw schedule that will provide us additional support as we execute our CREAM and Fire strategy for this year. On slide 12, we've provided a summary of share capitalization as of the closing of the convertible loan on May 1.
The company now has 141,143,954 fully diluted equity shares issued and outstanding on an as converted treasury method basis, and 196,043,752 shares outstanding on an as converted fully diluted basis. I'll now hand the call back to Josh for some additional closing comments.
All right. Thank you, John. With that, I think if there are questions, we'd be happy to take them now.
Thank you. Everyone, if you would like to ask a question, please press star 1 on your telephone keypad. We'll take a question from Eric Des Lauriers. Your line is open.
Great. Thank you for taking my question. First one from me, it's nice to see the progress made in the percentage of A-Flower that's being produced. I just wanted to make sure I'm understanding that metric properly. That isn't something that we should expect to ever get to, you know, a 100%, you know, you're gonna have some biomass going to distillates, some going to value flower, et cetera. I guess first, just, you know, am I understanding that part correctly? And then two, could you just help us understand, you know, sort of what, ballpark, you know, target you're looking for for this, percent of biomass as A-Flower? Thanks.
Yeah, certainly, Eric. Great questions. First, a little context on the metric itself. Yes, your interpretation is correct. That metric can't get to 100%. It is a portion of the total usable biomass. Ultimately, if you think about this in the context of what a higher-end indoor grower often achieves, you know, it's north of a 50% metric. It could hit, you know, 55%-60% of biomass being A-Flower, which is really, you know, really good performance when you think about this in the context of some simpler language like bigger buds versus smaller buds, for instance.
Often, you know, when you think about kind of anchor on the indoor and then work backward for our performance, when you think about the pinnacle of indoor performance as well, you can end up with about 25% of that biomass of trim, 75% flower. If you could ultimately get that closer to 55%-60% A-Flower and we'll call it 10%-20% B-Flower with the rest being trim in an indoor facility, you should be doing really, really well, assuming you've got genetics right and you have kind of the right profile. Now we have in our core markets three greenhouses. By and large, that just initially brings you down. Also remember in our markets, you know, Maryland, excuse me, Minnesota introduced flower in 2022.
From a foundational standpoint, New York and Minnesota were both built originally as biomass markets because they were oil product-only markets. We're migrating culturally toward A-Flower driven, you know, toward the flower-driven markets. We've not yet fully benchmarked where we think we can get that A-Flower within the individual markets that we're in. Suffice it to say, you know, kind of migrating that metric up closer to 25%-30% has really meaningful, a really meaningful impact on our ability to drive profit and really cash flow ultimately, in terms of taking the same facility, same cost structure basis, and driving both better quality and better efficiency through the system.
We'll come back as we get dialed in more on what the, what the ultimate target should be. We're still learning kind of within the constraints of the greenhouse environments that we're in. There's a lot of room in the metric that it will never reach. I'd be surprised if within the facilities we're in, we can get it even to 50% would be a really a stretch goal for a greenhouse like we're in. The greenhouses like we're in.
Yeah. Yeah, no, that certainly makes a lot of sense. Yeah, that color was extremely helpful. That's exactly what I was looking for. Thank you. I guess as a, as kind of a follow-up to that, I'm just wondering which states are driving most of the progress that you've made thus far. I'm guessing most of that is gonna be in Maryland. Obviously, you know, you guys are kind of working on, as you just mentioned, you know, Minnesota and New York, kind of transitioning from biomass to flower. I'm guessing the answer here is going to be Maryland, but just wondering if you could help us understand sort of, you know, which states have been driving most of that increase in percent A-Flower thus far.
Maybe, you know, to understand sort of at what stage you're at in Minnesota and New York. You know, I'm not trying to put a, you know, target number for, you know, the next quarter or the one thereafter or anything like that, but just, you know, some sort of qualitative understanding of sort of, you know, where you are in, kind of, you know, upgrading the flower production of Minnesota and New York, so to speak.
Yeah. I'll provide some color. Amber, if you do have anything to add, feel free to jump in. The core of this is actually the improvement has been Minnesota and Maryland, primarily those two states. What I would say is, if you think about it from a, how we're managing the business for cash flow, in both of those states, we see kind of an immediate receptivity to improved quality, and sell through. When you look at it through that lens, it made a lot of sense for us to very quickly apply resources to improve that flower quality in those two states in particular because of the sell through.
The New York market from a retail standpoint, still remains a very, you know, kind of challenging retail environment given the migration to adult use and the limited patient growth. You know, we put the resources in both Maryland and Minnesota, and we're seeing them gain traction. It's really, you know, both of those two. Obviously there's a lot of intention behind getting ready for adult use implementation, which we've got more visibility into in Maryland. There's, you know, a lot of effort going in there. At core, you know, the infrastructure on the ground is a little bit better for us in Minnesota than it is in Maryland from a environmental control standpoint. There's also a little bit more low-hanging fruit in Minnesota than Maryland relative to some immediate improvements.
Amber, if you have anything to add, great. If not, I think I answered probably 95% of it, so.
No, I think you got it, Josh, and you touched on earlier as well, kind of the shift in culture and mindset around producing fire flower products here at Vireo, and just really proud of how the team has stepped up and made these early improvements here. We look forward to continuing to work with them and drive further improvement here.
Yeah. It's great to hear. Very helpful. My next question, I believe you may have touched on it on the prepared remarks, but do you expect to have both of your Maryland facilities ready for adult use on July 1st? Should we expect both of them to, you know, transition to, you know, co-located sales sort of, you know, within the weeks or months after sales start?
From a planning standpoint, we are working like mad to be ready day one. Amber, if you have any other color there that would move us off of that. I know we've been planning toward it, I'm wondering if there's any other context there.
No, I don't. That remains the plan and the focus of the team is to be able to be co-located, day one in Maryland. A lot of excitement around that.
Yeah. Awesome. Last question from me, this is just another clarifying one from the prepared remarks. Josh, I was wondering if you could just sort of rehash what you mentioned about the potential sale of the New York facility. Not looking for any, you know, additional details. Appreciate that's a, you know, sensitive topic there. Did you say that there was a sort of a, you know, LOI that was signed or some agreement that had been signed? I'm just wondering what the status of that was. If you could just repeat that for me.
Certainly. I appreciate you suggesting that I repeat since I said, I can't offer more specifics on these. The words that were used on the conference call were there's been increased interest in our assets in New York recently, and we have entered a formalized sales process. Yeah, if you're particular about your words there, you know, we are formally reviewing, yeah, and I'll say very active conversations, dialogues. You know, as you're probably aware, closing transactions in the cannabis space is not always the easiest thing in the world relative to the counterparty risk and managing through those things. We're working through that real time right now.
That's really the extent of what I would say kind of outside the other comments that I noted, which is I think the combination of the more recent regulatory news mixed with, you know, even the diligence we've done on just how much indoor flower capacity is currently built or is even kind of in active construction right now, you know, should leave a lot of room. We're excited about what New York could turn into. At the same time, we're cognizant of the facts and made everyone aware of the fact that, you know, it's not an operation that makes money today and, you know, that's constraining for an organization in our position.
Yeah. Great. Thank you for taking all my questions.
Just a reminder everyone, that is star one if you have a question. At this time, there appear to be no further questions. I'll hand things back to Mr. Josh Rosen for any additional or closing remarks.
All right. Thank you, Lisa. Thanks for participating in today's call. I'd like to conclude simply by noting that we do feel that this initial momentum of our CREAM and Fire initiatives, and we can feel the momentum and that we're continuing to focus on executing what's within our control amidst what's a pretty challenging current landscape. We like the regulatory environment that we're in and the direction that they're headed. I'm energized by the progress we've made, but also well aware of the many challenges that the industry faces. Our current situation requires us to play defense first, but I'm optimistic that as we gain momentum, we can selectively begin to be more offense-oriented. We believe that we have an attractive standalone platform for growth and the foundation to be a long-term winner as our industry emerges.
We look forward to providing you future updates. With that, we can conclude the call.
Once again, ladies and gentlemen, that does conclude this conference. Thank you all for your participation. You may now disconnect.