Green Thumb Industries Inc

CNSX:GTII

Earnings Call Analysis

Stable Performance Amidst Challenges

In the second quarter of 2023, the company saw revenues slightly decrease by 1% year-over-year to $252 million. The dip was attributed to price compression, despite an increase in total units sold and the opening of six new stores. Retail revenues fell 2%, with comparable sales down 3% from the previous year. Meanwhile, consumer packaged goods revenue climbed 13%. Gross profit remained steady at $125.3 million, or 49.6% of revenue. Operating expenses rose to 33.4% of revenue due to costs of new stores launching, totaling $84.2 million. Net income dropped to $13.4 million, half of the previous year's, partly because last year benefited from non-recurring gains. Adjusted EBITDA was $75.8 million, or 30% of revenue, a slight decline from last year's 31%. The balance sheet remained solid with $149 million in cash and $166 million in working capital.

Steady Revenue and Commitment to Profitability

In the recent earnings call, the company reported a steady revenue stream, posting $252 million for the quarter, maintaining pace for a yearly total exceeding $1 billion in 2023. The adjusted EBITDA for the quarter stood at 30% of revenue, amounting to $76 million. They continue to prioritize profitability, a journey bolstered by an uptick in cash flow from operations, reaching $93 million in the first half of 2023, more than double the $40 million from the same period last year.

Expansion and Investment Strategies

The company has embarked on a growth trajectory, opening six new Rise stores and making substantial capital investments of $240 million. This expansion of retail footprint and the anticipated adult-use sales launch in Maryland present significant growth opportunities. The industry's projection to grow from the current $28 billion to an estimated $75 billion over the next decade underscores the potential for the company's disciplined capital allocation and strategic positioning.

Navigating Industry Challenges

Even as the company strengthens its presence in 15 operating states which cover half of the US population, it acknowledges industry headwinds, including regulatory and political obstacles. The leadership stands firm on their record and resilience amidst the industry's growing pains, not relying on speculative government reforms but driving growth through clear strategies.

Operational Highlights and Forward-Looking Initiatives

The company achieved operational milestones, such as generating $18 million in cash flow from operations in Q2, despite paying $52 million in taxes. They anticipate additional capital expenditures between $90 million to $100 million in the latter half of the year, signaling confidence in the future. Noteworthy initiatives include efforts to educate on the impact of the failed War on Drugs and a pioneering Cannabis Centric Music Festival in Illinois. The balance of 2023 will focus on driving operating efficiencies and a successful launch of adult-use cannabis in Maryland.

Financial Performance in a Competitive Landscape

The company's revenue saw a marginal 1% decrease compared to the same quarter last year, affected by price compression despite an increase in total units sold. Retail revenue fell by 2%, with comparative sales dipping by 3%. However, a growth in consumer packaged goods revenue by 13% and effective cost management strategies helped in maintaining a stable gross profit margin. The second quarter net income of $13.4 million, although lower than the previous year, accompanied by a robust balance sheet, demonstrate the company's resilient financial health amidst competitive and regulatory pressures.

Earnings Call Transcript 2023-Q2

[Operator]

Good afternoon and welcome to Green Thumb’s Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question answer session will follow the conclusion of formal remarks. During the question-and-answer session, we would ask for a limit of one question per person. As a reminder, a live audio webcast of the call is available on the Investor Relations section of Green Thumb's website and will be archived for replay. I'd like to remind everyone that today's call is being recorded.

I will now turn the call over to Shannon Weaver, Vice President of Communications. Please go ahead.

[Shannon Weaver, Vice President-Communications]

Thank you, Betsy. Good afternoon and welcome to Green Thumb’s second quarter 2023 earnings call. I'm here today with Founder and CEO, Ben Kovler; President, Anthony Georgiadis and Chief Financial Officer, Matt Faulkner.

Today's discussion and responses to questions may include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. These risks and uncertainties are detailed in the earnings press release issued today, along with the reports filed with the United States Securities and Exchange Commission and Canadian Securities regulators, including the 2022 annual report filed on Form 10-K. This report along with today's earnings release can be found under the Investors section of our website. Green Thumb assumes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call.

Throughout the discussion, Green Thumb will refer to non-GAAP financial measures, including EBITDA and adjusted EBITDA. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is included in our earnings press release and SEC and SEDAR filings. Please note all financial information is provided in U.S. dollars unless otherwise indicated.

Thanks, everyone. And now, here's Ben.

[Ben Kovler, Founder and Chie Executive Officer]

Thank you, Shannon. Good afternoon everyone, and thank you for joining our second quarter 2023 conference call. I'll lead off with an overview of our results and some observations on the current state of the industry. Anthony will discuss our operations, Matt will dive into the financials and then we'll open the call to questions.

Reflecting on the Cannabis industry and the economy as a whole, not much has changed since our last call. Inflation continues to dampen consumer spending, pricing pressure is still with us and there has not been any meaningful action on the federal front. So given the environment, we feel pretty good about our second quarter performance.

We posted $252 million in revenue, which was up slightly from the first quarter and kept us on pace to exceed, another $1 billion in revenue for the full year of 2023. GAAP net income was $13 million or $0.05 per basic and diluted share in the quarter. Adjusted EBITDA was $76 million or 30% of revenue. For the quarter, cash flow from operations was $18 million after paying Uncle Sam $52 million.

Importantly, six months cash flow from operations was $93 million, up from $40 million in the comparable six-month period of 2022

This cash flow gives us the confidence to continue to play offense as we ended the quarter with a strong balance sheet and $149 million in cash. We believe our cash flow generation, coupled with a strong balance sheet is one of our most significant competitive advantages. Right now expensive capital is a problem for most industries, but it is especially deadly for the cannabis sector, which is blocked from traditional capital sources and saddled with a punitive tax structure.

At Green Thumb, we have been able to navigate a path to profitability while remaining physically strong. Since our founding, our intense focus on generating cash and investing in spending it like it's coming from our own pockets has been our team's not-so-secret Secret Sauce. This gives us the ability to execute our long-term growth strategy in a patient and deliberate manner.

We not only sleep well at night, but we also wake up early excited about the opportunity in front of us. And there's a lot to be excited about. This quarter we opened six new Rise stores in New Hope, Minnesota, Grove City, and Philadelphia, Pennsylvania. Bristol, and Danville in Virginia and Las Vegas. Nevada.

Now we are in an even better position to expand our brand awareness in these key markets. Opening new stores is a challenging process with timelines that are hard to predict and we are proud of our team for their tenacity on this front. We now have a total of 84 locations supported by 18 manufacturing facilities and we plan to open several more stores this year.

This is all part of our long-term strategy that continues to unfold, which includes building brands that resonate with Americans. We see these lifestyle aspirational brands at key to our long-term growth.

Over the last 12 months, we have made capital investments of approximately $240 million to position ourselves to grow. This all plays out against our original strategy to enter open and scale with disciplined capital allocation. We are also excited about the July 1 commencement of adult use sales in Maryland where we have four dispensaries and a healthy wholesale business.

If Maryland follows the pattern of the W sales in other states it should be a nice lift in that market. We have made real progress in the quarter in executing our growth strategy and have a long runway of opportunity ahead. Legal U.S. cannabis sales in the U.S. is now a $28 billion industry, growing to an estimated $75 billion over the next decade.

Now that's a new record with regulated sales accounting for over $7 billion in the second quarter. But it's very important to know that that number does not include the sizable gray market untested unregulated products, such as Delta 8 and have derived PHC. And if you're curious what I'm talking about, take a walk in Lower Manhattan.

Despite that our 15 operating states are among the most attractive in the nation and offer access to 50% of the US population. So we believe we are in a terrific position to keep growing profitably and sustainably. While there are very few sectors with outlets as compelling as cannabis, there's no denying that the industry is going through growing pains right now.

The time continues to recede. For some time now I stop speculating on what government officials, many of whom have passed their expiration dates will do to lift punitive taxes and make some headway on safe, banking practices or let us list on a U.S. Exchange. I've stopped trying to predict what some states, notably New York will get their cannabis program in working order.

All I can say is that we stand on our record for clear, not wishful thinking, and feel good knowing our business is positioned to withstanding old guard politicians who have failed to facilitate needed actions to cannabis reform.

Above all, never lose sight of our mission to provide consumers with safe, high-quality products that improve their well-being and help them live more comfortably in this ever chaotic world. Along the same line, we will never stop advocating for justice for the many people who have suffered and failed war on drugs.

You may not be familiar with the case of Alan Russell, but Mr. Russell is currently serving a life sentence with no parole in Mississippi for his possession of one point five ounces of cannabis. That's an amount. We sell every day legally in our stores across the country. He is just one of the estimated 40,000 Americans who today are incarcerated for cannabis offenses, even as state-after-state legalized this use.

And the damage that this causes extends far beyond the person in prison. It affects their families, and their communities, many of which are black and brown. So, our Green Thumb team will never stop focusing our efforts on this devastating injustice.

Now, I'll turn the call over to Anthony for his thoughts on the second quarter, Anthony?

[Anthony Georgiadis, President]

Thanks, Ben and good afternoon, everyone. Thank you for joining us. As you just heard, the company had a respectable print in the second quarter, even with continued price compression and persistent inflationary pressure, we generated over $250 million of revenue and approximately $76 million in adjusted EBITDA.

In addition, despite making over $52 million in tax payments to our state, and federal partners, we generated $18 million in cash flow from operations. Cash flow generation and balance sheet stability, remain the name of the game for Green Thumb. During the quarter, we end up in $64 million across our CPG and retail fleet, bringing our year-to-date spend to $129 million.

We anticipate spending an additional $90 million to $100 million in CapEx over the third and fourth quarter, highlighting our confidence in our team, our brands and investment opportunities. During the quarter, in addition to CPG facility investments in New York, New Jersey, Minnesota and Virginia we opened six new stores and continue setting the foundation with the additional six to eight stores in Nevada, Florida and New York we anticipate opening before year end.

Another recent highlight was our Thanks Dick campaign, a sarcastic commemoration of Richard Nixon signing of the Controlled Substances Act in 1970. This act effectively initiated the failed War on Drugs. Decades of pharma communities at power. Or goal for the campaign was to educate our patients and customers on the impact from the failed War on Drugs and the state of cannabis today.

We are proud of the campaign’s success of our team patients and customers incredibly excited to support this very important awareness project.

Looking ahead to September, on September 9th and 10th, across the street from our Ride dispensary in Mundelein, Illinois, Green Thumb will host the miracle in Mundelein. A first of its kind two day Cannabis Centric Music Festival. We have an incredible lineup that includes Cypress Hill. J Rag, Stephen Marley, Lettuce, Action Bronson and other great artists. We have a number of attendee packages still remaining for those who want to make history with us.

Our store is just a short ride north from the O'Hare Airport and the vibe will be something extraordinary. On our last call, I highlighted some of our strategic initiatives for the balance of 2023. They include driving operating efficiencies, proper resource allocation, both micro and macro and a successful, Maryland adult use launch.

I'm excited to report that the team's work in Maryland is off to a strong start. And rest assured, we are continuing to optimize our opportunity within the market. On another note, we want to call out the increased activity we are seeing of unregulated cannabis and farm bill compliant, and non-compliant cannabis products.

As most within the industry know, many of these products lag testing, basic standards and utilize questionable inputs. In addition to posing consumer safety risk, we're also monitoring the impact these activities could have on future industry growth prospects and subsequent regulatory response.

In conclusion, while we recognize our industry continues to experience regulatory, political and industry-related headwinds, we remain incredibly bullish on our business and our team's ability to navigate these turbulent waters. As we said before, the star of the team is the team, and we have a special one.

With that. I'll turn the call over to Matt to review our financial results.

[Matt Faulkner, Chief Financial Officer]

Thanks, Anthony and good afternoon, everyone. We generated over $252 million of revenue in the second quarter of 2023, a 1% decrease compared to the prior year quarter. While total units sold increased during the period, total revenue declined due to price compression. Continued unit growth in key markets, as well as revenue generated from six new stores opened in the second quarter helped offset some of the effects of price depression.

Overall, retail revenue decreased 2% versus the second quarter of ‘22. Second quarter comparable sales decreased 3% for the second quarter last year base of 76 stores. Consumer packaged goods gross revenue increased 13% versus the prior year quarter. Gross profit for the second quarter was a $125.3 million or 49.6% of revenue, compared to $125.8 million or 49.5% of revenue for the second quarter last year. The effective price compression was more than offset by cost of goods sold management and verticality.

Turning to OpEx, Selling, General Administrative expense for the second quarter was $84.2 million, or 33.4% of revenue, compared to $63.5 million or 25% of revenue last year. SG&A exclude depreciation, amortization, one-time transaction cost and stock-based comp, which we refer to as normalized operating costs, approximated $57 million, compared to $56 million in Q1 and $57 million second quarter of 2022.

The sequential increase in total expenses primarily reflected costs associated with opening new stores. We continued to carefully manage our costs as navigate this challenging environment. The company generated net income of $13.4 million or $0.05 per basic and diluted share during the quarter. This compares to net income of $24.4 million or $0.11 per basic and $0.10 per diluted share reported last year. Second quarter last year benefited from an acquisition-related non-cash fair value credit which did not occur in the current period.

Adjusted EBITDA which excludes non-cash stock-based compensation and other non-operating cost was $75.8 million or 30% of revenue for the quarter, as compared to $78.7 million or 31% of revenue for the second quarter last year. We ended the second quarter with a strong balance sheet, including cash of $149 million, and working capital of $166 million while paying more than $52 million in tax payments during the quarter.

In summary, we're pleased with our second quarter performance and execution within this current market environment. We will continue to focus on execution and our stated goals. Thank you for your support and confidence as we look forward to updating you next quarter.

With that, I'll open the call for your questions. Operator?

[Operator]

[Operator Instructions]

The first question today comes from Eric Des Lauriers with Craig-Hallum. Please go ahead.

[Eric Des Lauriers, Craig-Hallum]

Great. Thank you for taking my questions. My kuestion is just on the CapEx outlook beyond the end of the year here to the extent that you can provide. I know previously you mentioned that you do expect CapEx to decline in 2024, but just given the sort of, I think it was $90 million to $100 million expectation for the second half. Just any sort of indication you can give us for 2024 albeit early would be great. Thank you.

[Anthony Georgiadis, President]

Hey Eric. Great question, Anthony here. So, what we'll say is this, obviously we've invested quite a bit in CapEx over the last 12 months. We've got a healthy kind of Q3 and Q4 spend ahead of us. Tough to say how much we’re to spend in ‘24, but it goes without saying, it's going to we expect to be materially less than that this year.

We're near the end of our capital cycle. And you know, the reality is we’ll probably have more visibility on that over the coming quarter as we kind of finish up budgeting exercises for 2024.

[Eric Des Lauriers, Craig-Hallum]

Thank you.

[Operator]

The next question comes from Aaron Grey with Alliance. Please go ahead.

[Aaron Grey, Alliance Global Partners]

Hi, good evening, and thanks for the question. So I just want to touch a bit on the wholesale. Nice to see that growth sequentially and year-over-year there. Any additional color you can provide may be geographically on the states that primarily contributed to the wholesale growth, it was more broad-based. And then also at the brand level, whether or not it was more from your premium brands or some of your value-oriented brand? Thank you.

[Anthony Georgiadis, President]

Sure. Aaron, I'll take that question. Anthony here again. So, let's start with I guess, the second question was related to kind of brands that we're seeing kind of either strength or the lack thereof. Was that it?

[Aaron Grey, Alliance Global Partners]

Yeah. Just on the wholesale growth. What might have given it geographically and then also by brand. So what drove it geographically different states or and different brands whether it be RHYTHM, &Shine or otherwise?

[Anthony Georgiadis, President]

Yeah. So look, I mean, one of the things that we've continued to see is a bit of a trade down by the consumer. So that's led to, certainly sizable strength within the &Shine portfolio. But, across the board, we feel pretty good about kind of all the brand performance across the board. In terms of market, the softness really continued to be felt in those markets that are experiencing kind of price compression.

Those markets generally have a lot more competition on the wholesale side of the business. So to call out, place where continues to be a bit challenging. You've got Nevada, you got Massachusetts and a few others. Place where their strength. We feel like we're making solid progress in a number of our important kind of eastern markets, PA, New Jersey and then obviously with Maryland turning on, we feel like we've got some opportunity there, as well.

[Aaron Grey, Alliance Global Partners]

All right. Thanks very much for the color. I’ll jump back in the queue.

[Operator]

The next question comes from Andrew Partheniou with Stifel. Please go ahead.

[Andrew Partheniou, Stifel]

Hi, good evening. Thanks for taking my questions and congrats on the on a good quarter here. Just wondering if you have this? Do you - can you let us know what the same-store sales growth is, if you exclude New Jersey as it's kind of an outlier since last year? Wreck launched, not sure if you have that but, also I was wondering about production expansions that are expected to come online towards the end of this year beginning of 2024 in a number of states. Correct me if I'm wrong, but New York, New Jersey, Minnesota, Virginia. Could you talk a little bit about how each market is behaving? And, and if they can support additional supply? What are you expecting in terms of your inventory levels and what this additional supply that comes online? How do you think the market can react in terms of volume and price? Thanks.

[Ben Kovler, Founder and Chie Executive Officer]

Sure. I'll jump on that. Thanks. Andrew. It’s Ben. Appreciated. Let’s see it’s two things at one. Same-store sales, no we're not going to break out, ex New Jersey what the same-store sales, I mean, but I would say New Jersey turned on April 21st. And so it's most of the second quarter. So that's not a key driver. I don't think into the comp, especially with how good that market started.

So I wouldn't – it’s not a huge factor, but as you will see in the third quarter where it’s lapping a full 90 days here in the third quarter.

Second part of your question, cannabis new supply coming on? You're right about the timing which is 2024 and cannabis supported in New York, New Jersey, Virginia Minnesota and I think as you know, bottom-up answer a lot depends on the rules and what's going on and what gets enacted when. But we have a lot of confidence that people across the country want more RYTHM flower.

This is a product and a brand that resonates with people. We know that Dogwalkers is working. We need to make more Dogwalkers. We get questions every day, including a handful today and when can get Dogwalkers in New York. So we know that we just got to make the right product that we have the right formulations here and we just got to go execute against our strategy and we have spots in these markets.

We look at total size of the market, total population, number of stores, our stores, the adult turn on the verticality. That's why we spend 50 plus million in several of these markets because we should be able to sell that wholesale product. So, yes, we have product turning on. Again, it's been a bottom-up approach pretty crawl, walk, run. So there's nothing monumental or game-changing, but a slow methodical growth against the core strategy just as it's always been. So we're pumped about what's ahead.

[Operator]

The next question comes from Michael Lavery with Piper Sandler. Please go ahead.

[Michael Lavery, Piper Sandler]

Thank you. Good afternoon.

[Ben Kovler, Founder and Chie Executive Officer]

Hey, Michael.

[Michael Lavery, Piper Sandler]

Could you just give us the latest look ahead or kind of where we sit now in terms of price compression? Are you seeing lights at the end of the tunnel? How much it varies obviously state-to-state, but can you point to places where just maybe just a little State of the Union and give us a sense of where it's - is it improving anywhere yet? At least stabilizing and just sort of a walk around for that?

[Anthony Georgiadis, President]

Sure. Michael I’ll take that. So look, I'll tell you a high-level, price compression continues in many of the markets we operate in. I would say that in the third quarter, it's not as if we saw material slow down today the markets that have exhibited that the price - the price compression that we felt all the year. And have we seen a real stabilization? The reality is no, we haven't.

Now we did start to see some stabilizing in call it, Maryland with adult use coming. But across the board, I think, when we look back on ‘23, I think, one of the themes of the year, it's just going to be the price compression that we felt. But generally speaking, we haven't seen a material slow down and what we do continue to see again is a trading down by the consumer where in terms of the quality of the product they're purchasing and buying greater unit size.

So that's been a recurring theme of Q2. We will see if it continues in Q3 and Q4. But and that's one of the reasons why we built the business that we have is we now have a brand portfolio that allows us to kind of to service kind of all ends of the market. So that's really how we're reacting to the price compression that we continue to be able.

[Michael Lavery, Piper Sandler]

And initially there was at least in some states a scarcity from the limited license since the environment that drove supported pricing, and drove value. Historically, in CPG, it's primarily been brand-driven. It's still so early for brands in the category. But you've got top of brands and put resources behind them. Are you seeing some loyalty developing? How's it look as far as kind of evolution of branding in your portfolio?

[Ben Kovler, Founder and Chie Executive Officer]

Yeah, I think your characterization is correct. It’s early stages. We’re pleased with where we're at and we look out and play out three to five years and we think we have a chance to really build resonating brands with Americans who consume this product. We understand that experience. We understand the consumer and we're playing the medium, long game on that.

And we have tons of Great American brands of Great American companies that have done it before. And it's entirely the exact thesis we've had at the business we talked to you and everybody about is, history doesn't repeat it right? And so we can look towards the rhyme of history to understand how to build all the American companies out , get capital that can survive the cycle and build brands that resonate with American consumers.

So, it's early but we're excited about what's going on and it gives us just continued increased confidence, especially going into dicier markets that have unregulated, sloppy regulations or illegal markets like New York.

[Michael Lavery, Piper Sandler]

Okay, great. Thanks so much.

[Ben Kovler, Founder and Chie Executive Officer]

Sure.

[Operator]

[Operator Instructions] Your next question comes from Sonny Randhawa with Seaport. Please go ahead.

[Sonny Randhawa, Seaport]

Thanks for taking my question. I just wanted to get it update on in the early weeks of Maryland, some of your peers are saying that sales are tracking at two to two-and-a-half times medical volumes. So I was kind of want to see if you guys are seeing similar results out of Maryland in the early weeks?

[Anthony Georgiadis, President]

Sure. Sonny, this is Anthony. Look, as I mentioned in my prepared remarks, we're off to a good start. We feel really good about the execution and that really commenced on July 1. I would say our performance is consistent with what others have kind of indicated. We have four stores four stores within the state. We've got a healthy wholesale business and the reality though is that we’re less than 45 days into this thing.

And it's still very, very early. So, as we think about as the, as the business in Maryland starts to normalize, dust settles and - more consumers are aware that they can now purchase this product really remains to be seen where that really settles out. But so far we’re encouraged and we're excited by our position in the market.

[Sonny Randhawa, Seaport]

Great. I'll turn it back.

[Operator]

The next question comes from Matt Bottomley with Canaccord Genuity. Please go ahead.

[Matt Bottomley, Canaccord]

Yeah, good evening, everyone. Just wanted to focus my question more on Illinois and maybe just some of the macro-level comments that you were giving at the beginning of the call about price compression and inflation, how it relates to that home market, where I know you guys are - have or competing for the leading share. What are you seeing in terms of trends in that market? And more specifically on the retail front? Can you just remind us how many stores have opened in the first six months or I guess, first eight months of the year? And what your anticipation is for further distribution on the retail side and 2023?

[Anthony Georgiadis, President]

Sure, Matt, I'll take that, as well. You know what? There is a lot happening in Illinois. In terms of the number of stores that have opened, no, believe the number is approximately 20 to 30 up to this point. But what I'll tell you is that that's a much smaller number than anyone would have anticipated come August, 2023. And so, the situation there is, you've got, you now have price compression that's happening within the market is, as additional supplies kind of come online, certainly anticipating greater retail demand. But what I'll also say is that what we're seeing in the market is this, it's not as if it's been a stair-step, it's been kind of a slow and steady in terms of the compression that we've seen. So it's allowed us and probably others to kind of just react accordingly to it. But the reality is the next six months, six to nine months you're probably going to tell us a lot and it's really going to be driven by the number of stores that are able to open.

For us, with our ten store portfolio, there has been competition that's opened up around us. It certainly has impacted our retail business. And it's something we just continue to watch.

[Matt Bottomley, Canaccord]

Okay. Thanks for that.

[Operator]

The next question comes from Scott Fortune with ROTH MKM. Please go ahead.

[Scott Fortune, ROTH Capital]

Good afternoon, and thanks for the questions. I appreciate the color on, obviously, the ongoing price compression and around the stabilization impacts. But can you focus a little more on your side on the cost environment and improvements that you can continue to make there to continue to flow into the margins? I know I think you guys are still expected 50% gross margin, 3% EBITDA margin moving forward. But just what current cost efficiencies are you able to kind of drive further for the model here?

And then just on top of that your current SG&A and how we look at that kind of continuing increase as new stores kind of get added throughout the second half year?

[Anthony Georgiadis, President]

Sure. It's Anthony. I'll take that one, as well. Look, as we felt price compression, there’s a couple levers in the business that we had. I've talked about this on previous calls. One of those is, is operating efficiency and I'll tell you that, that's an area that we're very focused on. And, the way we kind of look at this, we look at it on a facility-by-facility basis and a store-by-store basis.

It's something we watch very closely. We're encouraged by the progress. I'll tell you that, I think we continue to have plenty of opportunity there, particularly as we continue to grow into the CPG capacity that we've already built. On the kind of SG&A side, I was going to kick it over to Matt, but I can just answer it. You know what?

We we've been sitting around, call it the $56 billion $57 billion of normalized operating cost. And yes, we open up stores. We're going to continue to see additional SG&A. I mean, there's just, - there's really no way around it. So, one of the things that we're doing is we're constantly looking at effectively the normalized SG&A expenses as a percent of our revenue. And that's kind of how we hold ourselves accountable. And we like where it is and our goal and our plan is to keep it at or around that level on go-forward basis.

[Ben Kovler, Founder and Chie Executive Officer]

I’ll just jump in Scott? It’s a good question, but zooming out a little, let's just look at the whole income statement. We got gross margin above the SG&A, but really below the SG&A I think is a key area, especially in cannabis. People talk about adjusted EBITDA. It includes a lot of murky kinds of adjustments, but just below EBITDA so we're all on the same page and, if we go through a real basic around here, just to cash flow lesson.

But, EBITDA minus taxes, minus interest because you pay taxes within cash if you pay taxes, you pay interest in cash, most of it usually and then your CapEx and what's left is the cash balance. There's really not much else. And so, for Green Thumb, most basic back of the envelope with the 300-ish runrate just take in this quarter times four, take a $120 million of taxes, that's current year cash taxes on the current EBITDA.

A pretty simple story, minus our interest cash payment doing annually, which is $17 million. Just as a reminder, if we have a mortgage on a retail property it shows up in SG&A as rent. If we have a mortgage on a cannabis production facility, it will show up as COGS in rent. So that's all above the line. However, the interest is knocked and was left there. For our perspective is, some number over 150, or the number you can do the math yourself, and then, minus CapEx, there is two kinds of CapEx.

There is maintenance CapEx, Essentially keep the lights on and then growth CapEx. And we've been able to really control that dial and understand our position. That cash flow generation after all of that for us is what puts us in a position to continue to invest. So the SG&A math have done an amazing job. We got it very tight. We understand it, percentage of revenue.

Anthony is right, but it's the gross profit, if the taxes that the interest in the CapEx also that makes the whole formula at work and that's what gives us a cash producing machine, and enterprise here that we're building for the long term on behalf of shareholders and it gets us pretty excited. Thanks for the question.

[Scott Fortune, ROTH Capital]

I appreciate the color. Thanks.

[Operator]

The next question comes from Mike Regan with Excelsior Equities. Please go ahead.

[Mike Regan, Excelsior Equities]

Hi, thanks for taking the question and congrats on a pretty quarter. Can you help us understand sort of the nature of this 55 to 65 incremental cash spending in the second half? Is this sort of incremental spending versus what was guided in May? Or is this a pull forward from 2024? And sort of understand what change versus made - to make this incremental investment? Thanks.

[Anthony Georgiadis, President]

It's a good question, and you're right. It, so it's a little here, a little there, a little bit of everything. We're able to see the results of the business and then make decisions of what's going on. So, we see the $90 million of cash flow from operations, which gives us the cash to continue to invest. So, some of its discretionary. So it's finishing out. We're looking at each project and doing it. I do not think in advance any mention. One of the other questions is that indicative that ‘24 is going also look like ’23. We continue to sort of double underline that we're at the end of the CapEx cycle and that's not an indication of what's happening. It's not even really that's really a pull forward. There will be a couple things in ‘24. At the moment, we have the ability to play a ton of offense and lots of different things.

We've talked about, our priorities of that cash flow being one CapEx, and here we are at the end two debt and talked about the debt and then, three, potentially to buyback or some advantage for shareholders. So, it's really confidence in the operations of the business finishing out the projects. We have four or five very large-scale projects that we wanted to finish out it continued to retail expansion that's making it happen.

A little bit of hustle in Maryland to get those stores open it up and running for July 1 that we didn't quite know what's going to happen when we gave that first guidance. But little here, a little there is the core answer.

[Mike Regan, Excelsior Equities]

Great. Thanks a lot. I’ll pass it along to the next person.

[Anthony Georgiadis, President]

Thanks Mike.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

[Ben Kovler, Founder and Chie Executive Officer]

Thanks everybody for joining us. Look forward to talking to you again in about 90 days. Have a great summer, fall.

[Operator]

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.