Mr. Charles Bachtell reports

CRESCO LABS REPORTS THIRD QUARTER 2023 FINANCIAL RESULTS

Cresco Labs Inc. has released its financial and operating results for the third quarter ended Sept. 30, 2023. All financial information presented in this release is reported in accordance with United States GAAP (generally accepted accounting principles) and in U.S. dollars, unless otherwise indicated, and is available on the company's investor website.

Third quarter 2023 financial highlights:

• Third quarter revenue of $191-million, with retail growth and strong performance in core markets helping to offset purposeful attrition from divested assets.
• In comparison with Q1, when the company initiated the year-of-the-core strategy, adjusted gross margin increased by over 480 bps (basis points), adjusted SG&A (selling, general and administrative) decreased by $40-million on an annualized basis and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) margin rose by over 1,000 bps.
• Generated $62-million in operating cash flow through the first nine months of the year.
• Gross profit of $94-million, 49 per cent of revenue.
• Adjusted gross profit of $96-million and adjusted gross margin of 51 per cent, up 373 bps from the second quarter.
• Adjusted SG&A of $57-million, a reduction of $4-million sequentially to just under 30 per cent of revenue.
• Adjusted EBITDA of $49-million, 26 per cent of revenue, up 21 per cent sequentially as adjusted EBITDA margin improved 528 bps.
• Generated positive operating cash flow of $41-million, inclusive of $8-million of one-time cash charges related to facility closures, divestiture activity and severance payments.
• One-time, non-cash impairment charges totalled $129-million, resulting in a third quarter net loss of $113-million.

Third quarter 2023 operating highlights:

• Retained the No. 1 share position in Illinois, Pennsylvania and Massachusetts.
• Maintained the industry's No. 1 bestselling portfolio of branded flower and branded concentrates, and the No. 4 portfolio of branded vapes and branded edibles.
• Branded equivalized unit volume of 20 million, up 28 per cent year-over-year.
• Retail transactions of 1.4 million, a 17-per-cent increase year-over-year.
• Opened two Sunnyside stores in Florida, bringing the nationwide store count to 70 as of Sept. 30, 2023.

Management commentary

"Our third quarter results demonstrate our ability to drive solid performance, with strong gains to our margin and operating cash flow, by continuing to execute on a strategy where we win in our core markets, and with our core stores, core brands and core products.

"Cresco Labs is leaner and more productive than ever. We generated $191-million of revenue, with strong growth in retail and good performance in our core helping to balance the impact of strategic divestitures. Compared to the first quarter, when we started executing the year-of-the-core strategy, we've held revenue relatively flat while improving our adjusted gross margin by over 480 basis points, and reduced our quarterly adjusted SG&A by over $10-million. This tremendous progress in our margin and cost profile led to adjusted EBITDA of $49-million in Q3, which is almost $20-million more than Q1. Our operating cash flow was $41-million in Q3, almost double what we generated in Q1 and Q2 combined.

"Our disciplined execution of the year-of-the-core strategy positions us to effectively compete today, execute the upcoming growth catalysts existing within our underlying business, and be opportunistic as new market opportunities continue to present themselves. This is essential to creating the strongest, most valuable Cresco Labs possible.

"With Ohio becoming the 24th state to legalize adult-use cannabis, the industry has achieved a major milestone with over 50 per cent of the U.S. population now living in a state where adult-use cannabis is legal. Support for the end of cannabis prohibition nationally has also reached a record high. While the timing of federal reform has been unpredictable, we have reached a tipping point where change is inevitable. Until that change comes, we're improving every aspect of our business to best position ourselves for both today's environment and for the future," said Charles Bachtell, chief executive officer of Cresco Labs.

Balance sheet, liquidity and other financial information:

• As of Sept. 30, 2023, current assets were $303-million, including cash, cash equivalents and restricted cash of $113-million. The company had senior secured term loan debt, net of discount and issuance costs, of $385-million and a mortgage loan, net of discount and issuance costs, of $18-million.
• Total shares on a fully converted basis were 468,955,546 as of Sept. 30, 2023.

Capital markets and divestiture activity:

• On Sept. 12, 2023, the company signed a definitive agreement with an entity to be operated by Mint Cannabis to divest its remaining assets in the Encanto Green Cross Dispensary LLC in Arizona, and closed the transaction following required regulatory approval on Oct. 18, 2023, yielding cash proceeds of $7-million.
• On Sept. 26, 2023, the company closed on a mortgage loan to borrow an undiscounted principal amount of $25-million. The loan is secured by real estate in Ellenville, N.Y., and improvements thereto. The company funded $18-million at close, net of discount and issuance costs, with the remaining principal held to fund future capital expenditures. The 10-year mortgage carries an interest rate calculated based on the FHLBank Boston five-year rate plus 375 basis points, resulting in an initial rate at close of 8.4 per cent.

Conference call and webcast

The company will host a conference call and webcast to discuss its financial results on Wednesday, Nov. 15, 2023, at 8:30 a.m. ET (7:30 a.m. CT). The conference call may be accessed via webcast or by dialling 1-833-470-1428 (U.S. toll-free) or 1-646-904-5544 (U.S. local), providing access code 259018. Archived access to the webcast will be available for one year on Cresco Labs' investor website.

About Cresco Labs Inc.

Cresco Labs' mission is to normalize and professionalize the cannabis industry through a CPG (consumer packaged goods) approach to building national brands and a customer-focused retail experience. As a leader in cultivation, production and branded product distribution, the company is leveraging its scale and agility to grow its portfolio of brands, including Cresco, High Supply, FloraCal, Good News, Wonder Wellness Co., Mindy's and Remedi, on a national level. The company also operates highly productive dispensaries nationally under the Sunnyside brand that focus on building patient and consumer trust and delivering continuing education and convenience in a wonderfully traditional retail experience. Through year-round policy, community outreach and SEED initiative efforts, Cresco Labs embraces the responsibility to support communities through authentic engagement, economic opportunity, investment, work force development and legislative initiatives designed to create the most responsible, respectable and robust cannabis industry possible.

We seek Safe Harbor.