Hello, everyone, and welcome to this September 2021 Iteration of the Needham Cannabis Conference. My name is Matt McGinley, and I'm the analyst that covers the cannabis equities at Needham & Company. Today, I'm honored to have George Archos, who's the Co-founder, Chairman, and CEO of Verano Holdings. This fireside chat is being webcast, and all participants in the fireside chat are in listen-only mode. If you want to ask a question, please do so via the Ask a Question button on the bottom of your browser, and we'll make sure we leave a little bit of time at the end to answer those questions. So with that, I'm going to turn it over to George for a few minutes here to give us a high-level view of Verano.
Can you give us a kind of state of the state, take a few minutes, and give us an insight on what the company is, and how would you describe this company to somebody who may be looking at the industry or the company for the first time?
Yeah, thanks, Matt. Appreciate being here today. Good afternoon, everyone. If I'm giving a high-level overview of Verano, similar to some other companies, we're a multi-state operation. We have operations in 11 states with licenses of 14. We're known for being a premium-quality operator. We're known for our high-end flower, our products. We started our journey here in 2014 in our home state of Illinois and have expanded into multiple other states. We started operation really on the wholesale side of the business because we thought that would be the most difficult, really focusing on cultivation and production operations, and then moved over to retail. We're vertically integrated in most of our states, which is important to us, and we're known as one of the highest-margin operators in the state. We believe in people, process, and products. I think we have one of the best operational teams in the industry.
Many of our leaders have been with me for 15 or 20-plus years. We've worked together in other industries. So I have a team that trusts to do the job every day. It's a team of individuals who like to win, and that's why we've done so well over the past seven years. The other part of that is process. We've worked very hard on developing an efficient process across the entire vertical. What does that mean? We've automated so many of our different procedures on the production side and the cultivation side of our business, and then product. That's really, at the end of the day, what we're known for. Having a safe, consistent, high-quality product for our consumer is how we've built our brand and how we've established ourselves as one of the top operators in the space.
Okay. Thanks for that, George. George, maybe we'll ask a few big-picture questions, and we'll delve into the details on Verano a little bit more, but maybe one that everybody asks that I don't think everybody has any great insight into with a crystal ball. But what are your thoughts on the prospects for federal reform, and how does that view that you have around that inform your view of capital deployment into the space? Does that matter? Is it sort of like it's part of the noise in the background, and what does or doesn't happen at the federal level isn't critical to what you do?
So to be perfectly honest, it's what you just said. It's not important to us, right? It's something that we do want, and we think it's something that will happen eventually. But we don't run our business based on federal legalization happening in six months or six years. We really focus on state-by-state what's happening with our business. We're really pushing for new states to bring on medical programs, for existing medical programs to transition to adult use. That's where our focus lies. In an industry where capital has not been readily available, we're very careful in how we deploy it. So we look for high ROI projects. And that's really how we built our business.
We've had opportunities to be in other markets where we've passed just so we can deploy our capital in others where we know we can win and succeed in the short term and the long term. First-mover advantage for us is a real thing across many markets, and that's more important than us concentrating on federal legalization. We're not building this business on something that's going to happen in the future, but we don't know when. We're building this business on what's going to happen this year, next year, following year, and that's how we plan appropriately.
George, when we look through the competitive landscape, what has changed in terms of the markets where you compete in, where you're competing competitively? What has changed competitively in the markets where you're at this year versus last year? Is there any significant change in the competitive landscape? And is that more on the just additional capacity side, or is that more along the lines of pricing?
So a lot of our competitors have come into different markets, which is great. Competition helps the consumer, right? But again, we focus on what we're doing as a business. I don't necessarily focus on what others are doing. We kind of pick our own lane, and that's how we operate. Not to say that we don't pay attention to what's going on in the marketplace, but Verano has built its business. I've built this business with some of my peers here to run a little bit differently, right? We haven't sold our real estate. We haven't done sale-leasebacks. Everything we've done, picking the premium lane in our products, premium price point, it's been a little bit different because that's just how we like to run a business. And we're not worried about competition, right?
The same competitors that are coming into the markets are the competitors that we've had for the last seven years, right? It doesn't change that much.
What's changed with the pricing structure in your markets this year versus last year? And how do you, yeah, I guess, maybe answer that question competitively. I got another one on your overall strategy.
In the lane that we currently don't really operate in, which is a lower-tier and mid-tier product, there's been more supply on that side. And you see a lot of price competition, a lot of discounting, etc., in some markets. But again, Verano doesn't play in that category. Not to say that we won't in the future. It's definitely something that we're looking at. But currently, today, we're really focusing on the high-end quality product and deploying that product in some of the markets that we currently don't have it in. So that's our focus. That being said, we are watching that closely. And as markets transition to adult use and it makes sense for Verano to create a new brand and enter the lower-tier categories, we will. It's just that time isn't today.
Right now, we're focused on continuing to build that premium brand across all these markets and having a national brand being known.
How do you measure or test your pricing structure in each one of these states? What do you look at in terms of determining when's the right time to promote or what the right price point to have in those individual markets? Is that an internally-driven decision about what you think the value of the product would be or hitting a margin rate, or is it based on market factors outside of your own stores and just generally?
Market factors, right? The benefit of being vertically integrated in some of these markets is we get to test different things through our stores, and then we can deploy it on the wholesale side, right? We're also, even with our wholesale partners, we're constantly looking for feedback and data. We work with wellness specialists at all these stores. We send them product, get their feedback, then we push where we see appropriately. We have a full-blown analytics department here, and we track everything that we do, and it helps us make decisions. But every market is different. What might work in one place might not necessarily work in another. So we have to look again at every state individually. We haven't gotten to that national level where everything is the same in every market. Every dynamic's different.
Medical market's different from adult-use, and there are seasonal factors in different markets, different types of demographics, so it changes quite a bit from market to market.
So you've been very active with M&A in the past year, and you've had acquisitions in Arizona, Ohio, Nevada. I think Pennsylvania is probably a few more that are missing there. How do you assess your present operating footprint and need to get exposure in other states? Where you're at right now in terms of the M&A, are you at a point where you're mainly looking for bolt-on opportunities, or do you still see other states that you would like to be in?
So we were pretty vocal coming out, going public. And one of the reasons we're going public was so we can go and transact on the M&A side, having a public paper. The strategy was very focused, right? Pennsylvania, like you mentioned, Arizona. States that we were in, but we weren't in in a big way. Ohio, we had a bolt-on. Massachusetts, we have one bolt-on left that we'd like to transact on, but we're patiently waiting to find the right deal. Illinois, we had one last store we wanted to bolt on. So going deeper in our footprint was a priority. We've done most of that at this point. So every day we look at every deal across the country, but we pass on a lot more than we actually transact on. The deal has to fit the Verano footprint. It has to fit the Verano culture.
We're looking for like-minded entrepreneurs, and that takes time. So again, we're actively looking across the country for additional M&A opportunities, but we're very strategic about what we close on. It has to fit our long-term approach, and it's not easy to find those assets sometimes. We've been very fortunate this year. We've announced quite a few deals. We have one left to close, and they've all been fantastic opportunities, best-in-class assets, best-in-class operators. And we want to continue down that path. We're not looking for distressed opportunities at the moment. We really want to find the best of the best to drive our future in a positive way.
George, in terms of the CapEx that you're spending at present, kind of walk me through the amount you've spent in the past few years and what you expect to spend this year and what the big projects are that you're funding this year that presumably would drive more of your growth in the next year.
Yeah, I mean, we had a big CapEx budget last year, and we haven't slowed down this year. I mean, I think we'll spend probably close to $100 million again this year. And the next two big capital projects for us are Pennsylvania and Florida. We're doing two big cultivation facilities in both states. They'll continue to scale as those markets grow. So those are 18-month to 24-month projects, and we're pushing on those too. And then along the way, we have expansion opportunities in multiple different states, but those are much smaller CapEx projects, and we're constantly building out our dispensaries. But you constantly have to invest in the business, right? And we're not afraid to spend the capital where needed. We're very fortunate that our cash flow covers all of our CapEx, so we don't need outside capital to fund any of these projects, which is great.
And again, we assess every opportunity. What's the quickest ROI? What makes sense for our shareholders, our consumers, our employees? And we push that button, and we push hard.
When you think about your balance sheet, I mean, I think you had $150 million in cash at the end of the Q2. You'll have a few outflows, I think, from CapEx. I think it'll be another $40 million or $50 million in the back half, and then there's a few little amounts that'll go out related to Sierra Well and Agri-Kind. But I guess, holistically, how do you think about your balance sheet today and your funding needs over the next year or so? Do you feel like you have a strong enough balance sheet to support the growth that you want to do, or do you feel like you'll have to enhance that with either some external funding? I won't say how you would do it, but do you think you'll need to raise additional capital?
Currently, with what we have in front of us, we are well-funded. No issues. Again, we fund all of our CapEx with internal cash flow. We have the capital to close out those transactions. That being said, we have a lot of optionality, right? Our debt is very small compared to our peer set. We have the option to bring on additional debt at great rates. We're just watching those come down, and we're paying attention very closely, but we don't need it today, right? Unless we find some great M&A opportunities that require some cash, we're in a very strong position, and we'll continue to look, and we will transact on a debt opportunity if it's needed.
Why have you opted not to use sale-leasebacks as many of your peers have done? I mean, your balance sheet is claiming that you don't have any of these sale-leaseback transactions where you'll be paying on those facilities for 15 years or so. What was the rationale behind not wanting to do that? And I guess, why would you keep that stance going forward? I guess, would you use sale-leasebacks in the future to fund some of your growth?
I mean, you have to look at the cost of those sale-leasebacks. They were the easiest path to capital over the last seven years when we started this business. Not to say that we didn't entertain them. I had talked to every single company, looked at different opportunities, came very close to doing it because, again, it was the easy path to capital. But instead, we buttoned down the hatches, and we made it without doing it, right? I mean, that's a very high-cost debt that you can never get rid of. And those are our most important assets that we need. So we're very happy that we made it through that tough period without doing sale-leasebacks. Not to say that we wouldn't look at them in the future, but the rates need to significantly drop in order for us to entertain it.
Until then, I'd rather keep our real estate and bring on low-cost debt and continue to use our cash flow to pay these assets off and build them out.
All right. George, let's go through the detail in some of your states, but kind of walk us through your top revenue markets today and which ones you would expect to be your best markets in two or three years?
Yeah. I mean, we have our seven core states, eight core states now with Massachusetts cultivation coming online here soon. But the big drivers for our business are Illinois, New Jersey with adult use coming online, Florida, and Pennsylvania, right? Those are the big drivers of our business. And we have great positions in all of them, and we're going to continue to expand in every one of those markets. Very looking forward to New Jersey adult use coming online. It's been delayed quite a bit, which we're not happy about. But again, that's the one side of our business that we can't control. We work with the regulators. We try and push as hard as we can. We had expected adult use to come online August 22nd. Instead, that's when the rules dropped.
So we're working with New Jersey now to see if we can start ahead of the February deadline. Maybe we can make that happen. Maybe we can't. We're working with the other ATCs as well. But those four states are where we're pushing hard to add additional cultivation capacity, push the retail stores, and make sure that we have the people in place to capitalize on what's to come.
So if you expected New Jersey to come on in August, you would have been locked and loaded, ready to go for that well ahead of time. I mean, how do you feel your position for that opening up if it does open up around year-end or maybe into 2022? And how will your business be weighted? I know that the dispensary is a little bit of a different dynamic in that they're operational, but the grow you had was sort of being put together. How would you assess your supply situation right now in New Jersey? And if you are better in supply, would you be a bigger wholesaler in 2022 than a retailer in the state?
We'll see how it plays out. I mean, our business is always to wholesale and to retail, right? So our three retail locations are open. They're well-positioned throughout the state. We're in the Jersey Shore. We have one close to New York, one close to PA. So on the retail side, we're covered. But putting our products everywhere is obviously a very important factor to us. So we're currently wholesaling to almost all the ATCs in that state. We plan on continuing that process, and we also want to purchase from the others, right? We want our consumers to have optionality at the retail stores. So we have one of the biggest facilities in that state. We are ready. We were ready for August 22nd. That being said, we'll be even more ready, whether it's February or December or November, whenever it may come.
But if they're going to push it all the way to February, we're ready for it. We're excited for it. We have the people in place. We have the products, and we're ready to hit the ground running there. Absolutely.
All right, so in Arizona, you have, I think, six operational dispensaries, and you have a substantial growth. I think it's 110,000 sq ft, and you're expanding that pretty significantly. I guess, are you happy with that retail footprint as you have it today, or would you expect to acquire other assets? And what will you be able to service from that facility in terms of being both wholesale and internally sourced product? What would the mix be from the product that would come out of that facility that would be sent internally versus sent to the wholesale market?
The goal would be to have at least 50% of the product at our stores coming from our facilities, and the rest we get wholesaled. We love our six-store footprint today. They're in phenomenal locations. The one store that we have in Phoenix that was the original MÜV store is moving to a flagship location. It should be here within the next 30 days, and then we'll make a transition to all of our stores, moving them over to Zen Leaf. We're excited about that, especially coming into season for Arizona. October, the snowbirds come back. We should see a nice ramp up in that market. It should time very well with the new store and the transition to Zen Leaf. But we do want to add to our retail footprint there. We just haven't been in a rush, right?
The deals that we did were, again, best in class. We got a phenomenal operating team. We have fantastic stores, and that's not easy to come by. So we wanted to let things kind of slow down a little bit, level set, and we'll continue to look at that market. But we would like to add some retail. On the cultivation side, we'll add it organically. We don't need to add any big cultivation footprint. But on the retail side, we would like to add some more.
Yeah. So in Illinois, you're approaching the caps. I think you're at the 10 operational dispensaries, and I'm not sure how big the facility size is relative to the square footage, but I think you're 192,000. I think the cap in Illinois on that license would be at 210. So I guess the first one would be on Illinois. If the facility is fully built out and the incremental licenses that are coming online in Illinois will probably not be operational until later in 2022 or 2023, how would the growth of the wholesale business look over the course of that time period? Can you still grow in a market where the dispensaries aren't growing? And then what should we think about the dispensary productivity you have over time?
I mean, at some point, I assume it would go down if all 180 licenses are operational, but to get to that full point will likely take some time. So I guess, yeah, walk me through kind of what you think will happen with the dispensary productivity in Illinois over the next 18 months or so as those dispensaries begin to roll out.
Yeah. All good points. Let me go through them one at a time. So the facility, 192,000 sq ft is a building size. It's not our canopy. So we have plenty of room to expand on the canopy side, which is by design. We don't like to overbuild. Finally, these licenses got awarded, but taking quite some time. So we're looking forward to those coming online. I think that's going to expand our wholesale business. I also think it's going to expand the business overall in the state of Illinois. We're at a strong run rate, but I think there's significant room to grow, right? You saw a little bit of slowdown in August. Mask mandates were put back in place. Tourism probably dropped off. Unfortunately, we're still dealing with COVID here. So it is what it is. We'll get through it.
But we're looking forward to those new licenses coming online. We think that's going to be a big driver of the industry. There's so many municipalities that don't have access throughout the entire state. So we're working with them, and we look at them as wholesale partners. We helped quite a few win some licenses. So we're going to make sure that they're successful. That's how I look at Illinois currently. As far as our retail stores, again, first-mover advantage is a real thing. The majority of our retail stores are currently in municipalities that have either allowed one store, two stores, three, whatever the case may be. So we have really good moats, and the majority of the stores have already built in those municipalities. So we feel really good about our retail footprint. We have three stores in downtown Chicago.
Very difficult to find a location in the city between the daycares and schools and the zoning rules. So I think even our Chicago stores are pretty well protected, and our suburban stores are sitting really well. So again, I see it all as all upside here in Illinois for us.
Yeah. So in Pennsylvania, I think you have 12 operational dispensaries, and you have the grow. Kind of what's your expectations for growing the asset base in Pennsylvania? And I guess, can you speak to the, I guess, margin profile with the Agri-Kind acquisition and how that could impact your operations there going forward?
Absolutely. So we have the 12 operational stores. We should open up two more stores this year if all goes well, and we'll open up the remaining stores next year. We only have one site left that we need to site, and off to the races to get construction done and get those open. Agri-Kind is definitely going to help our margin profile in PA. We had hoped to close that in Q2. It got pushed into Q3, so we should pick up a couple of percentage points there on the vertical side. We also just brought on the phase two of construction in that facility, so that'll help going into Q4. And we're going to be starting that large capital project in PA, which won't affect the current asset, which is great. So that continues to operate on its own.
No construction going on, clean facility, and we'll continue to build out that new one and get ahead of adult-use, which we believe will come within the next couple of years in PA.
George, when you look at the data from Headset on Pennsylvania, the revenue hasn't really grown very much in the past six months. There's been some dispensary addition, which would imply that the revenue per dispensary has gone down a little bit. And I don't have great data on the patient counts in the state, but I assume that's growing. What do you think the dynamic is playing out in Pennsylvania where you would have, I'm guessing there's still growth in patient counts. You do have some growth in dispensaries, but the market overall has not grown very much from an average of February and March around that $90 million mark. What dynamic do you think is playing out in PA right now?
So I mean, it kind of lines up when we're coming out of COVID, right? So it's been a transition period across the country, and every market acts a little bit differently. We also had the summer slowdown situation. Come August, some of these markets have a little bit of slowdown. Really bad inclement weather in PA, even into New Jersey. We currently have one store closed in PA, one of our top performers. It got flooded. It is what it is, right? I see this as a short-term pain for a market that's one of the strongest in the country. And I think we're just going to continue to grow, right? I mean, there's a very good patient count there. It continues to climb. But really, what we're looking for out of PA in the next four months is that adult-use transition. That's where our focus is.
I don't want to look at a couple of months and worry about a market that's one of the best in the country, but really, we're just looking for that AU transition and getting ready for it.
How would you assess prospects for that to occur?
New Jersey and New York need to flip, and I think the pressure will be on. So I would expect that the talks are going to heat up next year once they see that the sky hasn't fallen in New Jersey and/or New York. So again, I give 24 months, but really, I would hope next time this year, around this time, we have something in play.
Great. And then Nevada, I think you have four operational right now, dispensaries, and you have two cultivation facilities. The Sierra Well acquisition, I think, adds a little of the retail footprint. But I guess, what overall do you hope to gain from that asset, and where do you view your overall asset base in Nevada once that acquisition is integrated?
Once we close on the acquisition, we'll have the four retail stores. We have a great store that's almost done with construction that's getting inspected here within the next week. That'll be the five stores. What Sierra Well added was access to two cities that we weren't in. We got Reno, Carson City, limited stores in those two municipalities. We had a great wholesale footprint there, so it was great to add the retail stores. We also have a distribution center up north now, which came with that acquisition, or as soon as we closed on that acquisition, which will provide us easier access to the wholesale market. And it added another 10,000 sq ft cultivation facility, which is great. We needed it. Even though we're expanding our cultivation, it's nice to get something that you can tweak a little bit and have additional flower capacity. It's good.
I mean, Nevada is another market where we might want to add another one or two retail stores. We have a great team on the ground. It's a legacy market for us, and we like where we're at. I mean, those licenses are capped, and it's a strong market. It's come rolling back this summer coming out of COVID, so it's been great.
Florida is a big state for you, given the AltMed acquisition was one of the key parts of your go public. The integration of that made you one of the, I guess, maybe the third or fourth largest operator in the state of Florida. How would you assess the competitive landscape in Florida right now? And I guess, what worries you about some of the stickiness in terms of the promotional intensity that, or I guess, is the promotional activity right now sticky, and does that worry you about the overall margin structure in that state in the next year?
I mean, it's similar to what we talked about earlier. It's a great state. The adult-use transition there will be one of the greatest stories in cannabis, with so many tourists there and a huge population, limited licenses. It's going to be phenomenal for us. Again, like earlier, like we talked about, the current promotional activity going on, it's something we see in multiple markets. It's not something we concern ourselves with. We operate a little bit differently. So we stay out of that parade. Most of it's in the lower-tier categories, so it doesn't really affect us. That being said, we do watch. We pay attention. If we want to start adding hoop houses and greenhouses in Florida just to have that lower-tier category, which we most likely will in the future, then we'll enter that for it.
But for right now, we want to make sure that we're concentrating on that MÜV product. Our plan is to add Verano-branded products there and go even higher price point, higher quality. And that's our strategy for Florida. We have a great pipeline of retail stores throughout the rest of this year and a phenomenal pipeline for next year. Again, we've changed kind of the structure of how those stores are being built, where they're being put, adding a little bit more of our style to it and getting ready for adult-use. I love Florida. There's no secret. I mean, the first thing we wanted to do coming out of that deal last year was get back into Florida in a big way. We could not have picked a better team.
They're tremendous at what they do, and together, we've been working hand in hand to even make that business better. And they've also helped us get better in other places. So it's a love story. It's great.
What are you doing to prep for adult-use conversion? Do you expect that to occur in 2023, or do you think that that'll be more of a 2025 scenario? What would you prep for that?
We'll see. I mean, if they can get these signatures in, we have a referendum next year. I think the referendum passes. We'll just see if they can pull it off. If not, it goes to 2022 with probably a pretty quick start in 2023, which is perfectly fine by us because it takes a lot of time to build these big facilities. We have to get ahead of it, like as we have done in other markets. So again, we're about to start a huge cultivation expansion, which will go basically in line with our retail expansion. Again, we have a huge pipeline of stores that we want to add, but we can't add those unless we have the cultivation. So those will go hand in hand next year.
Sure. George, up until very recently, and it's mainly driven by the M&A, you had, or you still have, near best-in-class operating metrics. Your gross margin rate is very high. Your EBITDA is very high, and your free cash flow conversion is great. But you did have a hit that occurred in the most recent quarter on the gross margin side. I think it was around three points. What drove that decline, and what should that tell us about the gross margin rate on a go-forward basis? Is that a timing factor where assets came on, where it knocked it down, or do you think that there's other dynamics that are going on with either pricing or something that would reduce your ability to get those 60% gross margin rates in the future?
That was mostly from the M&A, right? So we had inventory step-ups that were significant. We had biological asset change, which will go away once we switch over to U.S. GAAP. Those two things are 6% of the margin right there. And then we didn't close Agri-Kind in the quarter, which was another 2%. So you add 8% back, we're feeling pretty good about where we were for the quarter. We did say we should get right back to our historical margins by year-end. We feel comfortable with that. That being said, it would have been nice if New Jersey adult use had occurred. That would be even better. But when you're transacting so heavily in the M&A front, you come across things that you don't expect. And we're streamlining those assets. It happens. That's why we said there's going to be some choppiness in the quarter.
But we feel comfortable about moving forward about where we're going to land on the margin side.
Your gross margins are high, but your EBITDA, I don't want to go public, was just, I mean, north of 50, and your G&A was extremely low, and obviously, that's grown a little bit with the M&A, but how much G&A do you think you actually need to support the business? Because I remember looking at this six months ago, thinking that G&A spend is not at a sustainable level, and it has ticked up some, but not a whole lot. I guess, how should I think about the growth of G&A in that business to support the things that you need here? Could that be a source of deleverage on your operating or on your EBITDA rate over time, or do you think you can continue to leverage that G&A and keep that spending tight and get those margins higher?
So the G&A last quarter had some earnouts in it, which really shouldn't have been there. Those are one-time earnouts. So that should come down next quarter, which those should move over to the balance sheet. So we're working with the team on that. But I think we should land in the 25% range on the G&A side, and we're pretty comfortable with that. We run a lean business. Not to say that we're missing anything because we just have great people, and that's how we run it. So I feel pretty comfortable in that mid-20% range, and that's where it should be moving forward for at least a very good period of time.
Would you expect more of your growth in the next year to be on the retail side or on the wholesale side?
Good question. It's going to be both, right? We're very well-balanced in our approach. So PA, we got six more stores open. Florida, we have quite a few more stores open. Mass, we have another store to open. Nevada, we're opening some more stores. And then we got huge CapEx in Florida and PA on the wholesale side. We also have Massachusetts cultivation facility, which should be on the docket this week with the CCC. That'll come online. That'll give us vertical operation in Mass, which is a big deal for us. And then we have Nevada. That cultivation expansion is wrapping up during the next 30 days. That's going to help. Maryland had a big expansion. Ohio had an expansion. So it all balances out, right? It should be a little bit of both. We like to have a well-balanced portfolio. That's where we like to end up.
Obviously, Florida skews that a little bit because that all goes towards retail. But if you split that up, the portfolio looks pretty good as far as a well-balanced approach to wholesale and retail.
What's your split right now, wholesale versus retail? And I guess you're saying that that would be balanced to both and grow equally in the next year, or I guess, how would that shift?
I would expect it to shift more towards wholesale next year. Right now, it's the 70% and 20% on the wholesale retail split. But again, it gets skewed heavily with Florida. But that'll balance out a little bit next year.
Sure. And the cash flow, EBITDA conversion, I mean, you've been doing a great job of converting that cash flow. And despite the working capital investments, what do you do differently, or how do you manage that, I guess, your free cash flow differently than what other companies do? And how have you been able to sustain such high levels of free cash flow conversion? It's pretty unusual to see companies that are that high growth that are still converting at such a high rate like you are.
I don't know what other companies do. I can tell you that when we built this company, we were never one of the companies that wanted to go out and constantly raise capital. We didn't want to dilute. We didn't want to bring on heavy debt. We really wanted to focus on our operating metrics to make sure that we had net positive income, strong cash flow, so we could grow this business organically. Again, coming from this industry the last seven years, access to capital hasn't been great. So we've always been very bottom-line focused. And that remains the same today. You don't know when the spigot turns off, and there's no capital there for you. So we want to make sure that we constantly have a strong bottom line so we can continue to grow organically.
We can use that capital, again, to transact on the M&A side. If you look at a lot of our deals, we tranche out the payments. Our cash flow pays for those payments. So we just run the business very efficiently, right? It just goes back to people, process, product. Have great people that are focused on winning, have a great process throughout the entire business on the vertical side, cultivation side, manufacturing, and have great product. If you have demand for your product and it does well, you have a strong business, and that's really what we've done.
George, you mentioned the conversion of GAAP. Why is that important to you, and when do you expect to have that conversion complete?
We hope to have it complete by the end of the year so we're ready for U.S. markets if that comes to play. And honestly, I don't want to talk about bioassets anymore. So that'll be another important factor for us.
I completely agree. I hate first accounting for fair value, and I look forward to the day where I never have to look at your P&L with any fair value adjustments in them. That'll be a good day.
I don't want to explain the 3% hit on plants. It's not a fun conversation. People don't understand it.
Yeah. So one of the, I guess, big bear cases around the stock in the past few months has been the unlocks that have occurred within Verano. Can you walk me through what the pace of that unlock has been and how that will play out over the next eight months or so with additional unlocks coming through? And what can you do to mitigate the, I guess, damage of those additional shares kind of coming on the market? Is it just something that you just grin and bear it, or are there things you can do to keep that flood of additional Verano supply coming out of the market and pressuring the share price?
Yeah. I mean, at this point, 50% of the shares are unlocked. Also, one of our largest shareholders that has probably been one of our biggest sellers is 100% unlocked. So it was one of those things where you have to grin and bear it. We had so many institutions that didn't want to come into the story because liquidity wasn't great. So we wanted to rip the Band-Aid and get past it. A lot of our peers have been public for three years now. And it was one of those things that we had to get past. We have a phenomenal business, strong foundation, great growth ahead of us. And liquidity was an important factor. So it's not fun, but we have a lot of long-term shareholders that believe in the story.
I can tell you that when I go through our cap table of the people that are legacy shareholders, they didn't want to sell. They're here for the long run, and I think that we're going to have a tremendous ride ahead of us, right? This is one of those things that everyone has to go through, and getting it over as quickly as possible and moving past it is important. We did a cleanup trade after we went out. The rest of the unlocks coming up are pretty small. Again, I'm one of the largest shareholders. I haven't sold one share, nor do I plan to. There's some other insiders that don't plan on selling any shares either. We've actually been buying in the last week to show strength in the market and show what we believe in the story.
So we just have to keep concentrating on the business, and the rest should play out very well. We hope to trade on fundamentals one day and not unlocks and other news that has nothing to do with the strength of the business.
Yeah. Here's one from the audience. George, what states are you not in that you would like to be in at present?
Good question. I mean, we like all limited-license markets. We thrive there. We do very well. So we look at all of them. And at some point, Verano will be in most or all. So again, every deal that comes across our desk gets our attention. And we're actively looking for opportunities each and every day.
What do you think people miss about Verano? That if they look at Verano, they look at a peer, what would they look at Verano and maybe glance over and not realize that this is one of the bigger, better MSOs?
I think it's just Verano, period, right? People just don't know us, right? Even though we've been around for seven years, we've been around just as long as almost all of our peers. We were the quiet juggernaut that we didn't say much. We just performed, and we've only been public now since February, so people just need to continue to pay attention to us and realize that we do what we say we're going to do. We're very strong operationally, and we have a great footprint that's only going to get better over time, and the metrics are going to be strong. And again, we're one of the businesses that have run a little bit differently, but the strength is here, right? The numbers speak for themselves, and we welcome people to visit our facilities. We're very proud of what we've built. We have a tremendous amount of R&D.
Again, you come and meet our team, you realize why we're at where we're at. We have amazing people here that run the business, and that's what it's all about.
Yeah. So, George, if one of the primary reasons of going public was to have the currency to consummate more M&A and the multiples have come down across all companies, not just yours, do you think that that damages your ability to get additional deals done into next year, or have the private operators all kind of marked to market and now they understand that it's not the same market that they had been thinking that they could sell into maybe a year ago when the multiples were being paid on those businesses could have been higher, or the equity was more prominently valued, and therefore maybe they would have viewed that differently?
They should go hand in hand. The public multiples are coming down associated with the private multiples. So we can't stop doing deals that are accretive to Verano just because the share price has come down. Now, obviously, the transaction is going to change on the other side. We should bring the multiple down there. We're not going to overpay for an asset just because we want the asset. Again, it has to fit the Verano story. We're known to transact in a certain range, and that range might have to come down a little bit. But it won't stop us from transacting on a deal that we know is going to bring long-term shareholder value, right? We can't be afraid of M&A just because of where the share price is today. That doesn't work, right? Again, this is a long-term focus, long-term strategy.
Everything we've done is for long-term viability, and we're not turning off the phones just because our share price is lower. We just have to do a better job at M&A. That's all, and we're up to the test.
Good. All right, George, with that, I think we're about out of time, and I appreciate your time and insights, but we'll wrap it up there, and thanks again for that, and we'll talk again here when you report the Q3.
Thanks, Matt. Appreciate it. Thank you, everyone, for joining. Have a great day.
Thanks. See you.