Doug grew 20% faster than revenue growth sequentially as we saw some operating leverage. Turning to cash flow, we generated 15 million in operating cash flow in the quarter compared to a use of 6 million in Q1, consistent with the seasonal pattern we described last quarter. We invested 9 million in capital expenditures, primarily cultivation upgrades in Ohio, Pennsylvania, and Massachusetts, and ended the quarter with 67 million in cash and restricted cash. Looking ahead to the third quarter, we expect net revenue to be roughly in line with Q2 as we continue ramping the acquired store network and begin generating revenue from Kentucky, offsetting continued price compression and competition. We expect gross margin in the high 40 to 50% as we work through some higher cost inventory in the second half. We expect adjusted SG&A to be essentially flat in dollar terms as productivity gains and cost discipline absorbs the cost of continued expansion, and adjusted EBITDA margins of approximately 20%. With that, I'll turn it back to Charlie for closing remarks.

Thank you, Sharon. Let me close by pulling the quarter together. In Q2, we delivered growth ahead of the expectations we set and converted that growth into profit and cash. We demonstrated in Pennsylvania and Ohio that we can buy, we can build, and we can integrate at scale. And the federal landscape has moved further in the past 12 months than it has in history. The way we see it, our shareholders win with Cresco for two reasons. The first is the business itself. Exceptional talent executing on a disciplined strategy, escalating growth initiatives, expanding operating leverage, and a cost structure that combines both to generate cash. The second is the environment around the business. Reform that strengthens net income and balance sheets industry-wide and access to cheaper capital and new investors. Each of these forces shores up the other. Stronger cash generation strengthens the balance sheet. A stronger balance sheet lowers our cost of capital, and a lower cost of capital funds more growth. Cresco has the operating platform, the balance sheet, and now a federal backdrop moving in our favor. We're converting all three in a long-term value for shareholders. Again, thank you to the entire Cresco team for your execution this quarter and to our shareholders for your continued support. With that, we'll open the call for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Aaron Gray with Alliance Global Partners. Your line is open. Please go ahead.

Hi, thank you for the questions. And first of all, Sharon, just want to say best of luck to your future endeavors and been great working with you. You know, maybe, you know, in that line, I'll have the first question for you on the gross margin. Maybe some of the drivers that led to the expansion into Q2. I know you've been looking for kind of similar kind of high 40s to 50s. They just got it for 3Q. So maybe what led to some of the higher gross margin and is some of that going to be maybe not reoccurring in 3Q or how should we think about that margin evolution relative to the guy they just provided? Thank you.

Well, thanks, Aaron. Appreciate the comments. Thanks for the question. So yeah, Q2 was a good quarter. We sold through some higher margin products, specifically in Ohio and some other states. We did see some, as I mentioned in my remarks, some one-time benefits that flowed through that we don't expect to see repeated. And then when you think about how that's going to transact into the back half, we know we have some higher cost inventory that we need to still work through. Some of that is actually tied to some of the facility upgrades we were making. So, you know, with some of the rooms being shut down for a period, that creates some higher costs. So, we factored that into our guidance in the back half, and that's why we're, you know, expecting that 48 to 50 trend.

Okay, great. Thanks. That's helpful. I want to ask a question on hemp, you know, with the pending hemp restrictions on intoxicating coming in November. You know, what are your thoughts on the potential, you know, lift that could have on the legal market? And do you believe that it could be, you know, meaningful as we, you know, come into 2027? Thank you.

Good morning, Aaron. So, you know, it's hard for us to quantify exactly the uplift, but I do think it's safe to say that what hemp has Thank you for joining us. hard to quantify because they don't track sales or revenue or product throughput. But we do have that case study so far of a situation like Ohio where not only the regulations are in place but enforcement is seen and we've seen 30% year-over-year growth in that state and we're definitely seeing it come through the regulated channel. So optimistic that a lift is there, hard to quantify exactly how much.

Okay, great. Appreciate the color. I'll go under the mic in the queue. Thanks, Aaron.

Your next question comes from the line of Bill Kirk with Roth Capital Partners. Your line is open. Please go ahead.

Yeah, good morning. This is Nick on for Bill. Thanks for taking the questions and congrats on the quarter. First for me, just on Pennsylvania, you mentioned the 11% gross profit dollar lift from the acquired location. Just wondering what the drivers of that jump were and how much room is left to kind of further improve. It feels like a notable jump in a state that's seen some discounting pressure over the past 12 months. So any color there would be helpful. Thank you.

Sure. And, you know, we're excited about the results of the acquisitions in Pennsylvania. I think, again, testament to the strength of the team, really strong management, proven operating models, and you're seeing really the first phase of it, and we're Really excited about what phase two is going to look like when we fully convert those stores over to our brand and true full implementation operating model. So really, this just goes to the strength of Cresco and the team's ability to really optimize operations. We've got a lot of experience. We've got proven concepts. And we validate that when assets come into the Cresco platform, we make them better.

Great. And then second for me, just on the international side, you mentioned in the past selling out of trial product ahead of schedule. I was just looking for an update on how shipments have trended over the past few months, what you've learned about selling internationally, and just any other puts and takes would be helpful. Thank you.

Sure. You know, again, encouraged by our initial experiences overseas and what we've learned to date. We've learned that our brands are transportable. and that in any market that we go into, there's a recognition of the capabilities that we've developed. As we've always said, this is a light touch. This was exploratory and it's a test and learn type situation. So that has continued and it just makes us, it continues to make us optimistic as the opportunities over there continue to develop. And just like they were in the United States, it's not a straight line. nothing over there is automatic either and you really need to have the capability set that will allow you to make the adjustments as the markets continue to evolve and adjust themselves. So optimistic about the future potential there and again the Cresco capability set being competitive in Europe as it is in the U.S. Great, that's it for me.

I'll pass it on. Congrats again.

Thank you.

Your next question comes from the line of Frederico Gomez with ATB Carmark. Your line is open. Please go ahead.

Hi, morning. Thanks for taking my questions and congrats on the great quarter here. I want to ask about taxes. Could you maybe provide an update on your license application in-depth market and what would be the strategy here to participate there? Thank you.

Yeah, certainly, you know, unfortunate to be awarded a license and then have it taken away. It's not a common occurrence, but an unfortunate event here in the Texas rollout. You know, we're taking the actions, appropriate actions, to recover that license. We like the opportunity that Texas presents. It's an incredibly large state, and again, one of those states where the hemp experiment has shown the demand in the potential total addressable market of that state. So we'll continue to evaluate. The opportunities are in front of us to make sure that we get a license there. Optimistic that that will happen. And then we'll approach it just like we've approached every other new market, which again, a lot of experience in helping to launch and develop markets successfully and obtain leading market shares in those markets.

Thank you, appreciate that. Second question, I want to ask about the equity value creation path that you mentioned in your presentation and looking at the presentation that you guys uploaded in your website, which is great, by the way. Appreciate that. We are at the brink of rescheduling here, and I guess this is crucial for that re-rating opportunity that you guys are mentioning. So how do you think that multiple re-rating will play out in terms of How fast do you think that valuations rise to that level? And how do you think about M&A in that environment? You know, valuations for the broader industry rise with rescheduling. You know, what's the best strategy here? You know, maybe be more aggressive on M&A early or, you know, how do you think that's going to play out?

Sure. Appreciate the question. All of the elements of it, hard to quantify, hard to forecast as we've seen historically in this space. But I think in general, as you're seeing, Cresco's acquisitive. We know that we can create growth both organically and through M&A. And we see greater access to greater investor bases in capital through U.S. capital markets. as a really important and meaningful catalyst to continue to execute the strategy. So we find encouragement all along. How fast it'll occur, I think there's a lot of investor education that has to happen. The cannabis story has been around for a while. It has gone through multiple cycles over the last eight to 10 years. And so for us to now have this potentially broad access to traditional capital markets in the U.S., we have to put that hat back on. We have to understand that the cannabis story needs to be reintroduced to a lot of investors, both that have seen it before and that never had an opportunity or the ability to look at it. So we're going to embrace the mission. and we're going to be a leader in the educational efforts to bring the new investors along and how that translate to both base business and the growth engine that M&A is going to be for us. We're very encouraged and we're going to enjoy the opportunity. Greg, you want to add?

Sure, and good morning, Rodrigo. I would just add to what Charlie was saying. I think what's exciting about that opportunity you're outlining is we believe in our footprint. we have some of the highest torque potential given that we aren't in a lot of the states that are driving future growth which means the potential for us to enter whether it's in New Jersey or Connecticut or continuing to build out our facilities in Florida where we made the choice not to build out advanced adult use versus focusing on Pennsylvania that with greater access and cheaper capital there's a lot of things that we can do to invest behind where we are proving we win in states we operate and take that into more states that we don't have access today. So we're very encouraged that with both access capital and cheaper capital, there's a lot of areas that we can invest in our business to continue to grow, which gives us an advantage.

Thank you very much.

Your next question comes from the line of Kendrick Tai with Canaccord Genuity. Your line is open. Please go ahead.

Thank you and good morning. Charlie, with respect to Pennsylvania, could you speak to sort of apples to apples, what the biggest differentiators are in terms of your capability and footprint that has allowed you to weather the storm? Certainly, you know, the majority of your competitors, you know, have called out the very harsh reality of Pennsylvania, you know, given the delays in the transition to adult use. So any insight you can provide there, we appreciate it.

Sure, Kendrick. I wish I had maybe a unique answer, but it comes back to we tend to win where we operate. And we've been in Pennsylvania since the beginning. We helped launch that program there. We've always had a leading market share in that program and in that market. And so it really is the team on the ground there on both sides of the aisle for us on the cultivation and production side. and on the retail side are phenomenal and they're very experienced and they've been most have been with us since the beginning. They know how the market works. We continue to see Pennsylvania as a growth driver for us. It has been for years. And so when opportunities come up that we find can be accretive for us, even if they may not be for others, that's one of the unique opportunities that we see at Cresco is sort of the capability skill set. and the strength of the operating teams allow us to take advantage of opportunities when we see them. And so it's that execution on both sides of the aisle produces great results. Happy to see it. Really excited for that team.

Great. Thanks, Achal. And sorry, just a point in your referencing or using the terminology both sides of the aisle. Any update or thoughts around, you know, the Long-standing standoff within the Pennsylvania legislature. Any further thoughts there? I mean, it's a case of hurry up and wait now for years, given that it's a hung legislature. Anything further you could add there?

Sure. Politics, right? And I've said it many times on calls before, you know, sometimes good policy doesn't make good politics. It's It's a meaningful issue and anytime cannabis rises to that level of a meaningful issue, whether that's at the state level or at the federal level, it sort of starts to lose its identity and it just becomes a political piece. and that's what we're seeing here. It's what we've seen for the last couple of years. I will say recent conversations that we're having with members of the legislature, again on both sides of the aisle, as you see the government affairs lingo tends to transfer in the way that we think about a lot of things at Cresco, are positive and supportive and it really is a matter of how, not if. So we're encouraged. We think, as you're seeing, were successful in Pennsylvania as a medical program and we're going to be successful in Pennsylvania as an adult use program too. When that happens, hard to forecast, but I do think it's a matter of how and when, not if.

Thank you, Charlie. If I could squeeze in just a quick final one here on enforcement. We've seen a step up in a number of key states, obviously Ohio following the hemp ban, a marked step up in enforcement action, but we're also seeing a California and a number of other states stepping up enforcement action on either illicit and or hemp related. Can you speak to what you're seeing on the ground and how material those changes are and how you expect those enforcement actions to ramp in the context of the new world we're getting into?

Yeah, I think with all the focus that the THC, cannabinoid base, whether it's cannabis, hemp, or otherwise is getting at the federal level, you're going to continue to see an increased focus on enforcement. As we've been saying for years, any irresponsible operator, again, whether you're on the cannabis, marijuana, hemp, whatever side is bad for the future of the subject matter. And you're starting to see the state's as it always is the case the states lead they're faster they move faster than the federal government but you're seeing it on both at the state level and at the federal level and look what I can say is it is very encouraging for professional operators that are regulatory focused compliance focused and can execute at a professional level they're going to see the benefit of this it's incredibly hard in any industry to compete against and operators that don't have that same professionalism focus. Greater enforcement will lead to the eradication of whether it's illicit or it's just irresponsible business practices and the professional operators are going to benefit long term. So excited to see it happening.

Great. Thank you. Congrats on the quote. I'll get back to you. Thank you.

This concludes the Q&A session. I will now turn the call back to Charlie Bottle for closing remarks.

Thanks, everybody, for joining the call today. Again, really just want to extend a giant thank you to the Cresco team for the exceptional quarter and again for shareholders for the continued support. We look forward to talking to you about our Q3 results later this year. Thanks, everybody. Bye-bye.

This concludes today's call. Thank you for attending. You may now disconnect.