Earnings call transcript: Cannabist Company Q3 2025 sees revenue drop

Cannabist Company Holdings Inc. reported its third-quarter earnings for 2025, revealing a 7.5% sequential decline in revenue to $80 million. The company’s adjusted EBITDA also fell significantly to $3 million from $8.5 million in the previous quarter. Despite these challenges, Cannabist Company ended the quarter with $17.8 million in cash and achieved a positive free cash flow of $2.3 million. The company’s stock, which closed at $0.07, reflected a 2.05% decrease from its last close.

Key Takeaways

• Third-quarter revenue decreased by 7.5% from the previous quarter.
• Adjusted EBITDA dropped to $3 million from $8.5 million.
• Cannabist Company exited the Florida market, selling three retail locations in Pennsylvania.
• The company opened its 6th and 7th retail locations in Ohio.
• A special committee was formed to explore strategic alternatives, including asset sales and mergers.

Company Performance

Cannabist Company faced a challenging third quarter, with revenue dropping by 7.5% from the second quarter to $80 million. This decline was accompanied by a decrease in adjusted EBITDA, which fell to $3 million from $8.5 million. The company’s wholesale revenue also saw a significant 20% sequential decrease. Despite these setbacks, Cannabist Company maintained a positive free cash flow of $2.3 million and ended the quarter with $17.8 million in cash.

Financial Highlights

• Revenue: $80 million, down 7.5% from Q2 2025.
• Adjusted Gross Margin: 32%, a slight decrease from 33% in Q2 2025.
• Adjusted EBITDA: $3 million, down from $8.5 million in Q2 2025.
• Wholesale Revenue: $14.6 million, representing a 20% sequential decrease.
• Cash: $17.8 million at the end of the quarter.
• Free Cash Flow: Positive $2.3 million.

Outlook & Guidance

Looking ahead, Cannabist Company has formed a special committee to review strategic alternatives, including potential asset sales and mergers. The company is focused on right-sizing its operations, with minimal capital expenditures planned, and continues to manage its liquidity proactively. The board’s strategic review indicates a potential shift in the company’s operational and financial strategies.

Executive Commentary

• "We remain focused on managing liquidity and proactively addressing the balance sheet," stated David Hart, CEO.
• "Market conditions, particularly in wholesale, remain extremely challenging," Hart added.
• Jesse Shannon, President, emphasized, "We continue to seek out cost-saving measures in the face of persistent pricing pressure."

Risks and Challenges

• Market Conditions: The wholesale market remains challenging, with persistent pricing pressures affecting revenue.
• Operational Adjustments: The company’s exit from the Florida market and restructuring efforts could impact short-term performance.
• Strategic Uncertainty: The exploration of strategic alternatives introduces uncertainty regarding future operations and market positioning.

The company’s strategic review and operational adjustments reflect its efforts to navigate a challenging market environment while seeking opportunities for growth and stability.

Full transcript - Cannabist Company Holdings Inc (CBSTF) Q3 2025:

Conference Operator: Good day, and thank you for standing by. Welcome to the Cannabist Company Q3 2025 earnings conference call. At this time, all participants are in a listen-only mode. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker, Lee Evans, SCP of Capital Markets. Please go ahead.

Lee Evans, SCP of Capital Markets, Cannabist Company: Good afternoon, and thank you for joining the Cannabist Company’s third quarter 2025 earnings conference call. With me today are Chief Executive Officer David Hart, President Jesse Shannon, and Chief Financial Officer Derek Watson. Earlier today, we issued a press release reporting our results. A copy of this release is available on the investors’ section of our corporate website, where you will also be able to access a replay of this call for up to 30 days. Certain remarks we make today regarding future expectations, plans, and prospects for the company constitute forward-looking statements within the meaning of applicable Canadian and U.S. securities laws.

Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, which we disclose in more detail in the risk factors section of our annual Form 10-K for the year ended December 31, 2024, and in our subsequent quarterly filings, including the Form 10-Q filed today. Any forward-looking statements represent our views as of today and should not be relied upon as representing our views as of any subsequent date. While we may update any such forward-looking statements in the future, we specifically disclaim any obligation to do so except as otherwise required by applicable law. Also, please note that on today’s call, we will refer to certain non-GAAP financial measures such as EBITDA and adjusted EBITDA. These measures do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies.

The Cannabist Company considers certain non-GAAP measures to be meaningful indicators of the performance of its business in addition to, but not as a substitute for, our GAAP results. A reconciliation of such non-GAAP financial measures to their nearest comparable GAAP measure is included in our press release issued earlier today. With that, I will turn the call over to David Hart to get us started. David?

David Hart, Chief Executive Officer, Cannabist Company: Thank you, Lee, and thank you to everyone who has joined us on the call today. During the third quarter, we remained focused on driving efficiencies, continued cost containment, liquidity, and balance sheet management. As Derek will discuss in more detail in a moment, we closed on the sale of three retail locations in Pennsylvania and a manufacturing facility in California, generating over $8 million in net proceeds, more than offsetting our cash usage during the quarter. I highlighted the third quarter with the start of adult use in Delaware on August 1, which propelled revenue and adjusted EBITDA to nearly double in the market sequentially. More broadly, retail gross margin improved sequentially as a result of more disciplined discounting. However, inventory reduction initiatives in wholesale contributed to sequential gross margin compression.

We continue to make progress in footprint optimization with the opening of our sixth location in Ohio and sale of the three dispensaries in Pennsylvania, as we shift to a wholesale focus in Pennsylvania and retain exposure for an eventual adult use transition. Subsequent to quarter close, we opened our seventh retail location in Ohio with one more in development. Overall, market conditions, particularly in wholesale, remain extremely challenging. Our team continues to work aggressively to mitigate the market challenges while simultaneously continuing to right-size our corporate operations as we exit certain markets. On that note, I am pleased to report that we have now completed our exit from the state of Florida, having closed today on the sale of the company’s leasehold interest in equipment in our former cultivation facility in Lakeland, Florida, which was the company’s lone remaining asset in Florida.

That transaction resulted in gross cash proceeds of $11 million, with the potential for an additional $1 million contingent payment in the event of an adult use program in the state. As reflected by completing the transaction in Lakeland, we remain focused on managing liquidity and proactively addressing the balance sheet while continuing the process of optimizing our operating footprint. We will continue to pursue additional measures to take costs out of the business and right-size operations. To that end, the board of directors has formed a special committee of independent directors to review strategic alternatives. The special committee, with support from external financial and legal advisors, is considering a range of options, including additional potential asset sales, mergers, or other strategic or financial transactions. With that, let me turn the call over to Jesse to discuss our operational results and initiatives in more detail. Jesse?

Jesse Shannon, President, Cannabist Company: Thanks, David. During the third quarter, we maintained efforts to optimize our business, driving efficiencies through simplification and better product allocation. We continue to seek out cost-saving measures in the face of persistent pricing pressure, especially in wholesale. In spite of market conditions, we saw relative stability in our gross margins in Q3. I want to mention a few key highlights in the quarter. In Q3, our top five markets by revenue, in alphabetical order, were once again Colorado, Maryland, New Jersey, Ohio, and Virginia. Our top five by EBITDA were Delaware, Maryland, New Jersey, Ohio, and Virginia, with Delaware demonstrating the largest increase in adjusted EBITDA sequentially as a result of adult use launching on August 1, 2025. During the third quarter, we completed the sale of our affiliate in Pennsylvania, resulting in a decrease in three retail locations, and we opened one additional location in Norwalk, Ohio.

We ended the quarter with 51 operational retail locations compared to 53 at the end of Q2. After quarter close, we opened our seventh Ohio retail location in St. Clairsville, bringing us to 52 active retail locations today. We currently have one additional store in development in Ohio and one in Virginia. In retail, we benefited from a more disciplined centralization of pricing decisions, and we saw retail margins tick up sequentially as a result. Our internal brands represented roughly one-third of our retail mix in Q3, a slight improvement over Q2. As for brand partners, during Q3, we expanded the partnership with Coast Edibles after a successful launch in Maryland last quarter. Coast launched in June and quickly became the number one brand for the Maryland wholesale portfolio.

As before, we are continuing to rationalize our SKUs to reduce complexity and improve upon our pricing architecture at the retail level. We have discontinued or depleted 85% of the planned underperforming products from our portfolio and continue to progress this number in concert with shifting biomass, labor, and marketing support to better-performing SKUs. As Derek will detail, during the quarter, we continued an initiative to clear obsolete wholesale inventory, which began in the second quarter. As always, I want to thank the Cannabist team across our markets for continuing to demonstrate commitment to our patients and customers day in and day out. Another special shout-out to the team in Delaware for a fantastic adult use launch during the quarter, and the team in Ohio for opening two retail locations in quick succession, with another on the way.

Now, let me turn the call over to Derek to dive into the financial results. Derek?

Derek Watson, Chief Financial Officer, Cannabist Company: Thank you, Jesse, and good afternoon, everyone. I’ll provide a summary of the key financial results for the third quarter of 2025 and comment on our ongoing efforts to proactively manage our balance sheet obligations. For the third quarter, we achieved $80 million in revenue, a decrease of 7.5% from the second quarter, primarily due to the continued price compression and the sale of three retail locations in Pennsylvania. On an adjusted basis, gross margin in the third quarter was 32% compared to 33% in the second quarter. This percentage point contraction in adjusted gross margin was driven primarily by price compression. Adjusted EBITDA in Q3 was $3 million, compared to $8.5 million in the prior quarter, with a decrease largely due to lower gross profit dollars after the sale of the three Pennsylvania stores and the slight decrease in gross margin on an adjusted basis.

In the third quarter, wholesale revenue decreased 20% sequentially to $14.6 million, driven by price compression and lower impact from the inventory reduction initiative we’ve mentioned. Wholesale revenue represented 18% of total revenue in the quarter, compared to 21% in Q2. Retail gross margin improved slightly due to improved discounting discipline, with wholesale margins continuing at lower than anticipated levels due to market pricing pressures. The overhang from unabsorbed overhead in our underutilized production facilities remained flat, with approximately a 4 percentage point impact on gross margin. As our footprint contracts, we’re continuing to explore opportunities to reduce overhead costs. As a reminder, we removed $23 million in annualized costs due to corporate restructuring implemented during 2024, and approximately $2 million in annualized labor expense through cost reductions implemented in the second quarter of 2025.

We intend to continue taking costs out of the business to align with the reduced operating footprint. In the third quarter, free cash flow was positive $2.3 million, including an operating cash burn of $5.2 million, offset by $8.3 million in net proceeds from the divestitures in Pennsylvania and our facility in Balboa, California. CapEx in the quarter was limited to $200,000, compared to $1.8 million in Q2. As we continue to tightly manage cash flows, we expect CapEx will remain around these levels, with investment primarily supporting future store openings in Ohio and Virginia, and limited investment to enhance our back-of-house capabilities. With proceeds from divestitures offsetting our ongoing operating cash burn, we ended the third quarter with $17.8 million in cash, compared to $15.5 million at the end of the second quarter.

As David highlighted and as further detailed in our 10-Q disclosures, liquidity management is a top priority as we work towards closing pending divestitures, as well as evaluating strategic alternatives to determine how best to manage our balance sheet obligations. With that, I will turn the call back to David for final comments. David?

David Hart, Chief Executive Officer, Cannabist Company: Thank you, Derek. Thanks again to everyone for joining today. Have a great evening.

Conference Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.

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