Good morning, everyone and welcome to the Edible Gardens Second Quarter 2024 Business Update Conference Call. At this time, all participants have been placed on a listen-only mode. And we will open for questions following the presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Ted Ayvas, Investor Relations Crescendo Communications. Ted, the floor is yours.

Thanks, Jenny. Good morning, and thank you for joining Edible Garden's quarter ended June 30, 2024, conference call and business update. On the call with us today are Jim Kras, Chief Executive Officer of Edible Garden; and Kostas Dafoulas, Interim Chief Financial Officer of Edible Garden. Earlier this morning, the company announced its operating results for the three months ended June 30, 2024. The press release is posted on the company's website at www. ediblegardenag.com. In addition, the company has filed its quarterly report on Form 10-Q with the U.S. Securities and Exchange Commission, which can also be accessed on the company's website as well as the SEC's website at www.sec.gov. If you have any questions after the call would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. Before Mr. Kras reviews the company's operating results for the quarter ended June 30, 2024, and provide a business update, we would like to remind everyone that this conference call may contain forward-looking statements. All statements other than statements of historical facts contained in the conference call, including statements regarding our future results of operations and financial position, strategy and plans and our expectations for future operations are forward-looking statements. The words aim, anticipate, believe, could, expect, may, plan, project, strategy will and the negative of such terms in other words in terms of similar expressions are intended to identify forward-looking statements. These forward-looking statements are based largely on the company's current expectations and projections about future events and trends that it believes may affect its financial condition, results of operations, strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to several risks, uncertainties and assumptions as described in the company's filings with the SEC, including the company's annual report on Form 10-K for the year ended December 31, 2023. Because of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in the conference call may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although the company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, level of activity, performance or achievements. In addition, neither the company nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The company disclaims any duty to update any of these forward-looking statements, except as required by law. All forward-looking statements attributable to the company are expressly qualified in their entirety by these cautionary statements as well as others made in this conference call. You should evaluate all forward-looking statements made by the company in the context of these risks and uncertainties. Having said that, I'd now like to turn the call over to Jim Kras, Chief Executive Officer of Edible Garden. Jim?

Thanks, Ted. Good morning and thank you to everyone for joining us today. We're excited to report another outstanding quarter, highlighted by a 157% increase in gross profit, fueled by year-over-year growth of 61% in cut herbs and a 30% growth in vitamins and supplements. The shift away from third-party growers and a focus on higher-margin businesses are driving our gross profit margin improvement. Now with approximately 95% of our fresh product line produced in-house, our gross margin increased to 36.7% in the second quarter of 2024, up from 13.1% in the same period last year. We've also conducted a thorough review of our business operations and made the strategic decision to move away from less profitable segments of our business. Instead, we are directing our focus and efforts on -- towards more profitable, higher-margin segments. We believe this strategic shift combined with the vertical integration of our operations positions us well to achieve our goal of becoming cash flow positive in the near future. The second quarter, we expanded the distribution of our pulp line of sustainable USDA organic fermented gourmet sauces and chili-based products with the addition of UNFI distributors. As a leading North American wholesaler of health and specialty foods, UNFI serves over 30,000 locations, including natural product superstores, independent retailers, supermarket chains and e-commerce platforms and food service providers across the continent. We believe the addition of UNFI, which is dedicated to promoting a better food system and leading the way and meeting consumer demand for healthier options aligns perfectly with Edible Garden's zero waste inspired mission. Through KeHE distributors, UNFI distributors and our own e-commerce platform, retailers across the continent now have access to our Bland to Bold product pulp product line. Our growing roster of major retailers with pulp includes Target, Whole Foods, Meijer,…

Thanks, Jim, and good morning, everyone. Turning to our second quarter results. Total revenue for the second quarter was $4.2 million, relatively flat compared to Q2 2023. The slight increase in revenue was driven by our core product portfolio, primarily cut herbs and our vitamin supplement business. Our strategic shift away from lower-margin products offset the revenue increase in our core products, specifically from the floral segment. Cost of goods sold decreased by 37% to $2.7 million for the three months ended June 30, 2024, compared to $3.7 million for the 2023 comparable quarter. The decrease was largely driven by the company's strategic shift away from our largest third-party growers. As Jim stated earlier, in the second quarter of 2024, the company's gross profit increased by 157% as compared to the 2023 comparable period. In addition, gross margin increased to a record 34.4% in the second quarter of 2024 compared to 13.1% for the same period last year. Both these impressive results were driven by the shift away from our dependence on third-party growers. Selling, general and administrative expenses totaled $2.7 million for the three months ended June 30, 2024, compared to $2.4 million for the three months ended June 30, 2023. The increase was primarily driven by higher audit, accounting and legal fees related to our capital raising activities in the quarter and a one-time expense of $100,000. Net loss was $1.21 per share for the three months ended June 30, 2024, compared to a net loss of $4.83 per share for the three months ended June 30, 2023, while a loss from operations improved year-over-year by $645,000 from the loss of $1.83 million in Q2 of 2023 to $1.18 million in Q2 of 2024, higher interest expense and a one-time loss on the extinguishment of debt in Q2 of 2024, along with a one-time $1.2 million credit in Q2 of 2023 related to the employee retention credit led to an increase of our net loss this year. In closing, we've been working hard to improve our margins and we are pleased with the way our team executed this quarter. Our results in Q2 show that the strategic shift we made in our product mix and reliance on third-party growers is starting to deliver results, we remain committed to a disciplined financial approach. And with that, operator, please open the line for questions.

[Operator Instructions] Your first question is coming from Anthony Vendetti of the Maxim Group.

So Jim, it's great to see that we're moving more towards the high profitable items and vitamins and supplements grew this quarter. Can you talk about the outlook for that product line for the rest of this year? And then also just talk to us about the contract growers. I know you've been trying to reduce that to improve gross margin. How did that do this quarter and then expectations for that for the rest of the year as well?

We're extremely pleased with the quarter with the reflection in the numbers. I mean, we are continuing to expand the assortment of our products so we have the diversity that we need and the flexibility. Obviously, we are a CEA company that using the greenhouse is going to form everything we do and we're moving more to finished goods, i.e., the farms formula approach to the vitamins and supplements. To answer your question, vitamin supplements, we have a big trade show coming up in September. We'll be introducing a new line, in addition to the existing vitamin way line that we have. There'll be some near-term announcements as far as us expanding our sales efforts in the e-commerce realm, and then shortly, so that will allow us to expand our reach. That's going to really be driven by a combination of not only new products, but I think our positioning and relationship the 5,000 stores that we have, which allow us to have some opportunity to drive that business in and expand it. Obviously, the ring for vitamins and supplements is much higher than a plant, let's say. So for us, we see that not only allowing us to drive the business at a good healthy margin but also drive that top line significantly as we have been able to really dig in and get the CEA part of the business, the greenhouses with Michigan fully online now and is growing 95% of our fresh goods really allows us to kind of check the box shortly here once that business is cash flow positive, that segment and really start to drive the bottom of the supplements, we've got a line of functional pickles, which will be kind of one of the totally new item out into the marketplace. That's something…

And obviously, you have many of the top, if not all of the top well-known retailers as customers, which speak to the quality of your products. Can you talk about the expansion of SKUs within those retailers this quarter and expectation for the rest of the year?

And I think that's important to focus on because this quarter has really been getting the house in even better order once again, like I said, all you have to do is look at the GP increase to see that the impact of the investment we've made in people and in machinery and just getting better oil. For us, it's really moving forward. This quarter is going to be a good strong quarter as usual with our existing relationships. We have a contract with Meijer on the herbs that allows us a ring side seat to do what we need to do to get new items in. That's always an ongoing conversation that we have because we're a mile from their -- it's a couple of miles from their headquarters, they want rapid. So we spent a lot of time with the buyers, really focusing on innovation. There's a considerable amount of private label opportunities for all these retailers, there's been a big shift there in the marketplace, especially with inflation, private label continues to pick up steam and they're coming to us to help round out their assortment. So for us, look, we've got 5,000 doors plus and growing Walmart, Wakefern , Shoprite, Meijer, Hannaford, which is [Della Hayes], the list goes on and on. And so for us, it's really not only driving the existing business by adding on SKUs of maybe herbs that they may not carry or let us products that they want, but there's also this opportunity since we are a leader in that produce set especially the sustainability and cut herbs to leverage that to help that inform other more shelf stable products that give us kind of less pressure to get it out the doors quickly and allow us to get a better…

[Operator Instructions] Your next question is coming from Nick Pinkus of Forest Capital.

Congrats on a very strong quarter, especially the improvement in margins. And as the last caller mentioned, it seems to me you've got this amazing distribution network with all these loyal retailers and now it's really just about pushing more margin product through that funnel. So my first question, you touched a bit on this in your last -- the last question, but if you can expand a little bit on the shift in the product specifically to shelf stable items and the benefits there as well as how you kind of see that playing out in the second half of this year?

Look, just to kind of reinforce what I had to say to Anthony, it's really a function of putting the right products in the right pricing at the right margin into the funnel, as you would say or the distribution platform. And one of the crown jewels of Edible Garden has always been our relationships as a company, many people say, Well, Jim, you've been dealing with these guys through the last couple of decades. And it's not -- it really comes down to the -- and I'm not just saying the team and our ability to execute. When you look at our fill rates, when we're running mid- to high 90s, which is exceptional when you consider we're handling the live goods that makes us a trusted partner. And if our trucks are running in and they're running into the stores, I'll name them again, Walmart and Meijer, Hannaford and Shoprite. These are -- we're coming off on 60% to 70% of the total population in the U.S. as we're going into these stores 3 times to 4 times a week with our trucks or their trucks. It's just a matter of having the right offering. It's once again that we know that we can sell -- work with the retailers to promote. We've got some exceptional team members that come from these retailers, Dave Ross, who heads up our sales department. I mean, smart eye who work at Wakefern and Church & Dwight, and he understands what these retailers want at a buying level and what it takes to execute, especially in the store to not only have to communicate that you're an innovative product, but to also know what you have to do in order to not only get the product in, but to sell it through.…

It definitely does. And kind of to put it another way, it seems like it's the relationships and the trust that you've built with the big retailers that -- the Street really hasn't woken up to yet. But hopefully, they will as you start pushing more products through these retailers and through this channel. So, good luck with that. The second part of my question, you also touched on this a little bit, but if you could expand on it a little bit more. As you head into the peak season around Thanksgiving in the holidays, is there room for more vertical integration and gross margin improvement going forward in 2025? What are your thoughts on that?

Look, it's game time for us as a company come in Q4. I mean that's to us, we've always said that the super bowl of herbs and leases, especially herbs, just a function of people cooking around the holidays. Look, we've -- the trending data all points to people because of inflation, because of creativity, because of nutritional value, people wanting fresher goods people are cooking more and more at home and that's only continued for -- there's always seems to be a reason whether like I said it's inflation or people just want more nutritious product, some people just come down to spending money out at the restaurant. And that all -- that all equates to people, like I said, cooking more at home and herbs have continued to gain such a great prominence since they really are a flavor maker, and they allow you to add flavor and some nutrition to your products. And -- so that's always been the case in the holiday. We crushed it last Thanksgiving. I would expect nothing less this Thanksgiving. That business for us continues to grow. We continue to be an expert in the holiday season with the items and the displays and the things that we do that are consumer facing that helped drive turns and volumes. I mean there's no shortage of demand of people buying herbs from the beginning of November through the second -- the first week in January. So for us, the margin will continue to improve. We're bringing in actually brought in an outside consultant who is dedicated. She got a Cargill to help us improve our efficiency on our lines. We're putting in another production line in Heartland, in Michigan so that we can increase even more volume. So for us, it's game on.…

That's awesome. And we really appreciate your hard work and the entire team. It seems like we're making tremendous progress and very excited to get updates on -- in future quarters. Good luck.

Thank you very much. Well, we appear to have reached the end of our question-and-answer session. I will now hand back over to the management team for closing remarks.

Thank you for joining us today. Our impressive performance in the second quarter and the first half of 2024 is a testament to the dedication and years of effort from the entire Edible Garden team. We have consistently delivered high fill rates and built a strong reputation in the industry as a trusted dependable supplier. Our results also highlight the significant benefit that vertical integration is added to our operations. We are optimistic about what lies ahead and believe the future is extremely promising. Thank you again, and thank you for being on the call.

Thank you very much. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.