Good day, ladies and gentlemen, and welcome to the GrowGeneration second quarter 2022 earnings results conference call. Today's call is being recorded. For opening remarks, I'll turn the call over to Clay Crumbliss from ICR. Please go ahead. Welcome everyone to the GrowGeneration second quarter 2022 earnings results conference call. Today's call is being recorded. With us today are Mr. Darren Lampert, Co-founder and Chief Executive Officer, and Jeff Lasher, Chief Financial Officer of GrowGeneration Corp. You should have access to the company's second quarter earnings press release issued after the market closed today. This information is available on the investor relations section of GrowGeneration's website at ir.growgeneration.com. Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any of the forward-looking statements made today. During the call, we will use some non-GAAP financial measures as we describe business performance. The SEC filing, as well as the earnings press release, which provide reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures, are all available on our website. Following our prepared remarks, we will take questions from research analysts. We ask that you please limit yourself to one question and one follow-up. If you have additional questions, please reenter the queue, and we will take them as time allows. Now, I will turn the call over to our Co-founder and CEO, Darren Lampert. Darren. Thanks, Clay, and good afternoon, everyone. Thank you for joining us today to discuss our second quarter 2022 financial results. I will begin with a brief discussion of the challenges that continue to pressure all aspects of the U.S. cannabis and hydroponic markets. I'll then provide an overview of how our GrowGen business is performing, and I'll highlight the aggressive, proactive steps we are taking to adapt. I'll finish by reiterating our confidence in the longer-term strategic plan for GrowGeneration. I will then turn the call over to our CFO, Jeff Lasher, who will take you through the details of our second quarter results and our updated full year 2022 guidance. I would like to start by thanking each one of our employees across our corporate center and 62 retail locations for your continued support of GrowGen. It's been a challenging few months, but I, along with the rest of the executive team, appreciate your hard work and dedication to our vision and strategic plan. It will not come as a surprise to anyone on this call that the cannabis industry is currently experiencing an unprecedented and prolonged downturn that is negatively impacting all participants across the cannabis value chain, from growers to suppliers to retailers. For GrowGen, while our sales and profit generation in the first half of the year have clearly underperformed our original expectations, and while we're planning for the lull to continue through the second half, we remain dedicated to controlling the areas of the business which we are able to control. We identified early the need to proactively make changes in our business, and we're shifting our priorities to put less focus on our five strategic imperatives and put even more emphasis on cost controls, inventory reduction, and cash generation. As a result of our actions over the last few months, which we will discuss in more detail later, I want to reassure you GrowGen is on solid financial footing. We have a strong balance sheet, and we don't anticipate the need for external debt or equity issuance. We currently have $65.6 million of cash and cash equivalents with zero debt. As we sit here today, we feel very good about our liquidity position well into the foreseeable future, and the company has the ability to meet the operational needs of the business without additional capital, even if the current market conditions persist. As it relates to the broader industry, supply and demand remains out of equilibrium with a large oversupply of cannabis in the marketplace. As a result, growers have slowed CapEx projects, which is directly pressuring hydroponic sales year to date. The trends are most pronounced in major markets such as California, Oklahoma, and Michigan, which represent, in aggregate, over 56% of our retail sales. In summary, we've seen cannabis demand, and therefore hydroponic demand, slow nationwide, and we're not able to accurately predict when the industry will get out of this rut. On a positive note, we do see continued opportunities for cultivation growth in emerging states and regions, including the Northeast, Midwest, and New England, which over time is where we will focus our store expansion and commercial efforts. In addition, there have been some positive developments on the legislative front. The state of California recently eliminated the cultivation tax. That will make legal cannabis more competitive in the marketplace, where wholesale cannabis prices remain well below year-ago levels. At the federal level, lawmakers in the United States Senate have introduced new legislation that, if passed, would pave the way to federal cannabis legalization. While the general consensus is that the bill faces an uphill battle to overcome a Republican filibuster, we are encouraged that the conversation on Capitol Hill seems to be gaining traction again. As we said before, we manage our day-to-day operations and plan for the future under the going assumption that cannabis is not federally legalized in the U.S. In other words, our business model does not depend on that outcome. That said, we think it's only a matter of time until lawmakers in Washington catch up with the American public, who overwhelmingly support federal cannabis legalization. The first half of 2022 hasn't been easy, but we've made a lot of progress strengthening our business over the last six months. As I mentioned earlier, our balance sheet is strong and healthy. We have $65.6 million of unencumbered cash. We reduced inventory by $7 million, from $106 million to $99 million in the second quarter, through a combination of inventory management and selling out of closeout product. If there's a silver lining to this exceptionally difficult operating environment, we've used this opportunity to more closely evaluate our retail footprint and cost structure. Throughout the first half of the year, we've reduced our expense base by roughly $1.5 million a quarter through a combination of labor management and tighter day-to-day expense controls. In the second half of the year, we are projecting a decrease of an additional $1 million a quarter sequentially, primarily through store closures and expense control. In total, we estimate that our annual run rate expense will be down about $13 million by year-end 2022 when compared to Q4 2021 pace. That is $26 million of expenses in Q4 2021, down to $22.7 million in Q4 2022, not including annualized contributions from HRG and MMI. While dismissing employees is never an easy decision, I'm confident we've made the right choices to strengthen the company and better position GrowGen to make a strong recovery. In terms of our store count, we've closed two stores in July and we'll be closing an additional three to five stores this year. The majority of these consolidations are simply eliminating redundancies in the footprint to unlock those stranded costs. In fact, we expect very little, if any, lost sales due to these closures, as most of the stores were within 20 mi of another GrowGen retail location. As a reminder, we recently opened our new greenfield location in Jackson, Mississippi, and our new location in Ardmore, Oklahoma, that opened earlier this year, is performing as well as can be expected given the market conditions. As of now, we've scaled back store opening plans and only have 2-4 locations planned before year-end as we have shifted our priorities to manage through this downturn. Notwithstanding, we have signed leases that will be opening retail locations in Missouri, New Jersey, and Virginia. The takeaway is we still believe there are compelling opportunities to acquire and build new stores in states where we don't yet have a physical presence throughout the eastern parts of the country and in the Midwest. As I hope you can see, we are actively prioritizing working capital optimization to preserve our capital base while rightsizing our cost structure to reduce our break even and enhance our future margin structure. We believe that when the cannabis industry eventually recovers, these efforts have put GrowGeneration in a better place to emerge stronger with an even more attractive financial algorithm as the leading hydroponics retailer and private label supplier. Our private label strategy remains one of the top imperatives this year. We are driving sales of proprietary brands and private label products, and we're investing in resources to provide customer service, product development, and distribution excellence. Private label accounted for $6.5 million of retail sales, which is around 11% of our overall retail and e-commerce sales. Drip Hydro, our proprietary nutrient and additive line launched in GrowGen stores during the second quarter, is off to a strong start. In our non-retail store segment, our acquisition of HRG is enabling us to expand the distribution of some of our 400 private label SKUs to 750 hydroponic stores across the U.S. We already made good progress against this goal during the second quarter. Revenue from our non-retail distribution business, including HRG, MMI, Power Si, Char Coir, and other owned brands, total 16% of sales in the second quarter, but contributed over 21% of gross profit. I wanna make a few points about our performance in the quarter. Clearly, we are not satisfied with the current sales trends in the business. Our second quarter comparable sales declined 57% year-over-year, with generally equal distribution of dollar sales across April, May, and June. We did not see a seasonal increase in revenue in June, which historically showed an increase of over 10%. Same-store sales remain under pressure from declining demand for durable goods, including lighting and HVAC products, as well as lower demand from large commercial accounts. We also have not seen any material improvement in July trend, which was down approximately 52% compared to last year on a same-store comp basis. On a positive note, private label sales and margins have held up relatively well, and we generated positive operating cash flow in the second quarter of $3.8 million due to our concerted efforts to reduce inventory, optimize our working capital, and preserve cash. In terms of profitability, we had a GAAP net loss in the quarter inclusive of goodwill and intangible impairment. We delivered an adjusted EBITDA loss in the second quarter of $2.9 million, with a gross margin of 28.5%. These results in 2Q included a few items worth noting. Freight transportation costs were $3.8 million in the quarter, which we estimate is roughly triple our volume-adjusted historical normal, and we expect these elevated costs to continue in the back half of the year as we look to minimize procurement through rebalancing inventory and store closures. We incurred $500,000 of severance costs related to workforce reduction, and we incurred $800,000 of bad debt expense. The declining macro environment in the industry have adversely impacted the enterprise value since our last quarterly report. This triggered a review of goodwill and intangible assets acquired in business combinations over the last few years. The impairment expense is a result of declining enterprise values throughout the peer group. Net of these items, we estimate our adjusted EBITDA would have been more consistent with the first quarter, reflecting the difficult decisions we've made throughout the quarter to rightsize our expense structure and ultimately reduce the company's breakeven point. As Jeff will detail for you shortly, we are reducing our guidance for both net revenue and adjusted EBITDA for the full year of 2022. On the top line, the revised guidance reflects a third and fourth quarter that closely resembles the trends we saw in the second quarter, which, as you will recall, was sequentially softer than the first quarter. From a margin perspective, we expect continued pressure from elevated freight costs to be at least partially offset by the ongoing benefit of reduced G&A expense and the mix benefit from a higher proportion of private label sales. With that, I'll turn the call over to our CFO, Jeff Lasher. Thank you, Darren. First, I will address our second quarter financial results, and then I will discuss our updated full year 2022 guidance. For the second quarter, GrowGeneration generated revenue of $71.1 million versus $125.9 million in the second quarter of 2021, representing a decline of approximately 44%. The decrease in revenues was primarily attributable to a 57% decrease in same-store sales revenue and an $8.3 million decline in e-commerce revenue. This was partially offset by a $7 million increase in non-retail businesses, including the acquisition and integration of HRG and MMI into our distribution and other segment, which increased that segment sales to $12 million this quarter from $5 million a year ago. Our same-store sales for the second quarter 2022 were $44.8 million compared to prior year sales of $104.1 million, representing a 57% decline against the comparable period, operated in both periods for 2021 and 2022. Gross profit margin was 28.5% for the second quarter of 2022, up approximately 140 basis points sequentially from the first quarter. Gross profit dollar generation in the second quarter decreased 43% from the prior year, including the impact of additions of acquisitions and new stores in our retail stores, e-commerce, and our non-retail segment. Our retail gross margins in the quarter were flat to last year, but aggregate gross margins benefited from a decline in e-commerce volume as a percentage of total sales from 10% of revenue to 5% of revenue, as well as an increase in mix of distribution in other segment revenue from 4% of revenue to 17% of revenue. The distribution other segment has meaningfully more favorable gross margin than the retail and e-commerce segment. We did have a significant headwind on a gross margin basis, percentage basis from freight and shipping expense. On an absolute basis, freight expense is in line with last year. As Darren mentioned, with the decline in sales volume, the percent of revenue spent on freight increased substantially in the second quarter. Store operating costs and other operational expenses declined sequentially from the first quarter. Overall, the expense directly associated with revenue production declined from $14.5 million in Q1 to $13.8 million in Q2. Selling, general, and administrative or SG&A costs were $10.6 million in the second quarter, of which $1.1 million was derived from stock-based compensation. This compares to $10.3 million in Q1, with $1.6 million of stock-based compensation expense. Total SG&A expenses were impacted by $500,000 of severance related expenses and $800,000 of bad debt expense, more than double the amount of bad debt related expense in Q1. Compared to the same period last year, SG&A expenses increased $100,000 in the second quarter of 2022, with overall savings offset by the addition of HRG and MMI and the previously mentioned increase in bad debt. On a year-over-year basis, we added six retail locations from 58 to 64 stores in the second quarter, which also contributed to the increase in second quarter store operating costs on an absolute basis versus the comparable period one year ago. As Darren outlined, we've taken a number of steps to right-size operating expense, including resizing the payroll, consolidation of the e-commerce web stores that reduce marketing expenses, rationalizing our store count, and other operational changes. Depreciation and amortization of intangibles was $4.8 million in the second quarter of 2022. In addition, as Darren mentioned, the company had a one-time impairment of goodwill and intangibles associated with the previous acquisition. This $127.8 million will not impact the day-to-day operations of the business and is related to the contraction of the company's enterprise value. This one-time non-cash expense resulted in a valuation allowance expense of additional $1 million associated with temporary impairment of deferred tax assets, as we do not project the ability to use those operating loss credits in the foreseeable future. However, the loss generated will result in a tax refund of approximately $3 million later in 2022. Income tax was a benefit of $283,000 in the quarter. The income tax provision was impacted by the valuation allowance of $1 million. For 2022, we are forecasting a financial loss for tax purposes, but with the valuation allowance, we do not expect significant income tax provision benefit or expense for the remainder of the year. Net loss for the second quarter was $136.4 million or $2.24 per diluted share, compared to net income of $6.7 million or $0.11 per diluted share from the comparable year-ago quarter. Just a reminder that impairment income tax expense represents a preliminary amount and remains subject to change following the completion of normal quarter-end accounting procedures. Adjusted EBITDA, which excludes the expenses associated with interest, taxes, depreciation, amortization, impairment, and share-based compensation expense, was a loss of $2.9 million for the second quarter of 2022, compared to income of $14.5 million in the second quarter of 2021. We estimate this quarter's adjusted EBITDA loss includes roughly $1.3 million of unusual items that we expect should either become less impactful or will not repeat going forward, including bad debt expense and cost of labor reductions. Related to the balance sheet, the company ended the quarter with $55.6 million of cash and $10 million of marketable securities that are mature and available for sale. Total liquidity was $65.6 million at the end of 2022. The company reduced inventory by $6.9 million, offset partially by a $2.2 million dollar increase in prepaid inventory. We also consumed about $4.4 million for payments associated with technology and distribution investments. Cash generated from operations in the quarter was $3.8 million, primarily from the reduction in inventory. I will now discuss our updated expectations for the balance of the year. We saw an acceleration of declines from first quarter sequentially into the second quarter. We have not seen an improvement in the third quarter to date through July from those two Q lows. As such, we are now expecting and planning for comparable store sales across the country in the second half of the year to resemble the first half. Specifically, July was down 52% on a same-store sales basis. As a result, we are now forecasting comparable sales declines at or below Q2 results for Q3 and continued degradation in comparable store sales for the fourth quarter. Overall, we anticipate revenue to be down $30 million-$55 million in the second half of 2022, compared to first half revenue of $152.9 million. We are now expecting full year 2022 revenue to be between $250 million and $275 million and full year adjusted EBITDA to be a $12 million loss to $15 million loss, all including the contribution from recent acquisitions. The middle of our guidance range embeds a continuation of the current trends we are seeing today, and the low end contemplates a further deterioration in the operating environment. We expect gross margins to remain under pressure throughout the balance of the year due to lower sales volume that produces deleverage of the supply chain, as well as discounting and elevated freight costs. We expect adjusted EBITDA in the third quarter of 2022 to be a loss in the range of $3 million-$5 million, weighed down by elevated gross margin pressures, additional employee separation and store closure costs, and other expenses. We expect operating expenses to be controlled and sequentially down in the third and fourth quarters. As we are now planning for fewer retail store openings than we previously expected to add to the absolute dollar expense in Q4. We are continuing to take steps in executing our business strategy focus on generating cash from operations during this challenging industry environment. We are planning for total capital investments outside of acquisitions, primarily for new store build-outs and technology investments of $6 million-$9 million for the back half of 2022. Thus far, we have spent $8.8 million in 2022. We have opened a new location in Ardmore, Oklahoma, near the Texas border, and relocated stores in Auburn, Maine, as well as Redding, California. Our new Jackson, Mississippi location in July opened in July. We have closed two stores and plan to close three to five additional locations, and we are in the process of reviewing additional store closures. We estimate year-end store count to be around 60. With that, I will turn the call back to Darren for closing remarks. Before we open the line for your questions, I want to reiterate that while 2022 is not shaping up as we initially expected, we are making the tough decisions necessary to ensure we are in the best place possible to emerge stronger than ever when the industry eventually turns around. We are actively focused on the areas of the business that we can control, and we acted quickly, beginning back in January, to reduce costs and prepare to weather the industry downturn. We accelerated those efforts even further during the second quarter by delaying a few of our strategic goals this year in favor of rightsizing our core structure with significant workforce reductions, including a couple high-level executive positions and store count rationalization. As an update on our five key initiatives, our e-commerce sites have been combined, and we are actively working on efficient operation of profitable web stores. We have opened five new and relocated locations but scaled back near-term openings considering the industry-wide sales slowdown. Our technology improvements are delayed until later this year. We continue to expand private label penetration with 11% of retail sales from brands that we have control over, and our distribution and other segments continue to be an area that shows incremental revenue and beneficial margins. We have not changed investment activities in this segment. We remain committed to the expansion of our proprietary and distributed brands outside our own retail locations into 750 independent locations. We are very satisfied with the results of both Char Coir and Power Si and are very excited to have introduced Drip Hydro Nutrients and Additives. The addition of MMI strengthens our position to gain indoor vertical cultivation projects with their leading benching and racking systems. Controlled environmental agriculture and sustainable ag are only in a developmental stage, and we believe more local communities will invest in sustainable indoor vertical farms for local production of leafy greens, tomatoes, fruits, and other food products. GrowGen remains on solid financial footing with a strong balance sheet, a healthy liquidity position, and solid cash generation. We're confident that when the cannabis cycle turns and the excess supply in the marketplace eventually normalizes, GrowGen will be well positioned to recover quickly with a more attractive expense structure on a lower G&A base from which to build. Thank you for your time today, and thank you for your support in GrowGeneration. We will now take your questions. Operator. Thank you. Ladies and gentlemen, if you'd like to ask a question, you may do so by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question. We'll pause just a moment to give everyone an opportunity to signal for questions. We'll take our first question from Scott Fortune with Roth Capital Partners. Please go ahead. Good afternoon. Thanks for the question. I just want to focus, Darren, obviously a lot of exposure in California in your kind of sense there of your store base there. You know, we're seeing cultivation licenses up for renewal in October, and it sounds like maybe these California cultivators are not planning this year or renewing license. The ongoing pressure, you know, for a lot of these small growers. What's your sense of California, kind of that playing out over the rest of the year and then your footprint in California from a store base side of things? Yes, Scott. As you know, Scott, California is the epicenter of cannabis and always will be. There is a tremendous base of cultivators in the state of California. There's also a tremendous illegal market coming out of California. We believe you will see an equilibrium somewhere. You've seen positive events in California over the last few months with the state tax giving back almost $160 a pound to the cultivators out in California. We've seen a very slow outdoor season in California, which usually bodes well for the indoor markets. Our bread and butter in California is the legal markets. It's the indoor grows. We feel pretty comfortable with where the market is. We opened a store in L.A. last year that is progressing well. Our California stores, albeit down, have been stable over the last few months. Got it. I appreciate the color there. Can you provide a little more touch points from your top customers on the commercial side versus small operators, kind of the ordering and kind of in California with some of those other precious states. What percentage of revenue is driven from kind of the recurring fertilizers and mediums now versus more of the equipment purchases overall for your business now? Yeah. I think what you've seen this year, Scott, with the downturn in the cannabis markets and the downturn in the capital builds, we have probably seen a shift to about 75% on the consumable products and 25% on the capital build products. We do believe, you know, with the growth of this industry, you will see a resurgence of capital build projects in the future. When that occurs, we just don't know right now. You're seeing some positive talk right now on Capitol Hill from Schumer and Booker. More articles were out today. You're starting to see that compromise going into the interim elections. Like anyone, you know, we certainly have our fingers crossed. As you know, the cannabis, you know, the cannabis markets right now are about a $20 billion market. The forecast still are $100 billion by the end of the year. When you compare it to the, you know, wine and spirits markets almost at that $1 trillion mark, we think there's tremendous upside. In the growth of any industry, you do see ups and downs. Unfortunately right now, Scott, you're seeing downs. You heard it from Hydrofarm and Hawthorne this week. The markets have been tremendously challenging. GrowGen has taken all steps that we can, and we will continue to take steps to stabilize this business and bring it back to profitability. Thanks for the color. I'll jump back in the queue. Thanks, Darren. Thanks, Scott. We'll take our next question from Aaron Grey with Alliance Global Partners. Please go ahead. Hi. Good evening, and thank you for the questions. First question from me, just want to look at the broader, you know, cannabis landscape in your customer base. Capital markets environment, you know, very difficult for them right now, which always kind of has been given federal illegality. That creates difficulty in retaining, you know, an ROI, particularly when you think about the 280E headwinds that your customers face. I guess my question is, as we're kind of, you know, facing this reset now, you know, oversupplying key markets, you know, pricing pressure, which makes it even more difficult to be profitable, especially cash flow with the 280E. You know, how do you think about, you know, changes that are gonna be needed at the federal level to really get that shift back to where you might have been last year? Do you think SAFE would be, you know, enough for that if 280E was not being included and it was more just on the depository banking side? Thank you. I think to start with, Aaron, you know, the SAFE Act certainly brings legitimacy to the markets, which I think everyone is looking for. We all know that, you know, build outs and new facilities cost a lot of money. Right now what you're seeing is on the cultivator side, they're also preserving cash for the future. What you're seeing is just a tremendous amount of, you know, of individuals that are just, you know, they're happy with what they have right now. Again, if the industry stays at the level it is right now, there's enough facilities to handle that. Really the question that we'll have, and I think it's more the question, you know, for the American public, is the cannabis industry gonna grow from where it is today, you know, to where the estimates are in the future? We still do believe that in the future you will see, you know, a tremendous amount of business coming in from typical ag and indoor growing, which should be a boost for the hydroponic and the, you know, the CEA industry on a go-forward basis. We do believe that the SAFE Act will give a boost to the markets. It'll give a boost to the capital equipment markets. What you're seeing right now also is, you know, as new states come on board, albeit much slower than we expected, there are capital builds right now going on in New Jersey and New York. You're seeing them starting in Mississippi, but very slowly. Virginia, Missouri. You're starting to see, you know, builds. You know, we're seeing builds all the time, but just not at the same levels we saw a year ago. Okay. Appreciate that color. That's really helpful there. You know, just given you guys, you know, cash position, which, you know, someone strongly mentioned about how you don't need to take on any more equity or debt, and you guys are taking your own initiatives on the expenses side. On the flip side of it, you know, I'm sure you guys are better positioned than many of your competitors and even other people within the hydroponic supply chain, you know, potentially. You know, during these times, maybe not now, but how do you think about potentially, you know, getting more aggressive and finding opportunistic, you know, M&A opportunities? Is that not something you might think about on the horizon? Is that something you might be seeing that some that might be even more cash constrained while dealing with fundamental, you know, headwinds that you guys are as well? Would love to hear your outlook in terms of whether or not there would be M&A that might be opportunistic right now for you guys. Thank you. Aaron, I think you know me well enough, and you know the company well enough. If there's a deal on the table that makes sense for GrowGen, you know, we will look hard, you know, certainly hard at it, you know, whether it's on the product side of it or on the store side of it. If it's accretive and it's for the right price, you know, we're always looking. Right now, you know, it has to be the right price. You know, we look at deals all the time still. You know, fortunately or unfortunately, we haven't pulled the trigger. We pulled the trigger on two deals earlier this year. One was, I think, the last day of December, MMI, and we bought HRG this year, and we're very satisfied with both those acquisitions. It's not that we've been that quiet this year, you know, we have, you know, we have done some acquisitions and store openings. Right now we're balancing the two. If something comes by our desk that we believe makes sense and it's for the right price, we certainly will take a hard look at it. Okay, great. Thank you very much for the detail. I'll jump back in the queue. Thanks, Aaron. We'll take our next question from Ryan Meyers, Lake Street Capital Markets. Please go ahead. Hey, guys. Thanks for taking my question. First one for me. The three to four stores that you plan on opening, just kind of curious what your level of confidence is that you're gonna be able to generate some solid business out of these in the near term, and really any color around those three to four openings would be helpful. Yeah. A couple things. They're new markets, Ryan, and we do feel quite comfortable. We have business in those markets already. We have a very vibrant commercial team out there. So these aren't new states for us. They're just new states for us with locations to better serve the cultivators and growers in those states. The stores that we're building in New Jersey, Virginia, and Missouri are smaller than our average stores, so we'll, you know, we will definitely supply them to our supply chain. But we're quite confident that we'll get these stores profitable, as we did with Ardmore, Oklahoma, about six months ago. Great. That's helpful. Then, Darren, you kind of alluded to this on the call, but you know, given the tough cannabis market, what kind of opportunities are you guys seeing out there within CEA, you know, vertical growing, indoor growing for agriculture? Do you have really anything in the pipeline there? You know, it's still been very slow. We're starting to see certain transactions on the hemp side of it. But on the other side of it, we're starting to see. You know, we're starting to sell some products into the colleges that are starting to build greenhouses on premises, but it's been a very, very slow uptake. We think it's gonna be a 2023 project for GrowGen. You know, certainly been working on our business this year. You know, 95% of what we do right now is into the cannabis space. You know, we have plenty of work to do on our other side of the business, but we do believe in the next couple of years, you'll see that industry starting to gain some traction. Got it. Thanks for taking my questions. Thank you, Ryan. We'll take our next question from Andrew Carter with Stifel. Please go ahead. Hey, thanks. Good evening. I guess the first thing I wanted to ask, backing up on the initiatives, I wanna have kind of an understanding of where you are in terms of harmonizing. Number one, are all your stores and distribution centers kinda integrated from a back office perspective, ERP, where you have visibility? And then on the new distribution centers, are they in the place where they're starting to enable the company supply chain, or is it still kind of test and learn and not really benefit until kinda 2023? Thanks. Jeff, I'm gonna send that over to you. Yeah, Andrew. Just so you understand, on the store side, the 63 stores are connected together. There's a variety of systems that we use within the organization. The retail store side, all of the acquisitions that we have acquired over the last couple of years get plugged into our systems, the same day we acquire them, and we start receiving data and information from them. We do have a technology investment that will go in next year that will supplant that and provide better efficiencies for us. We're still doing quality control and validation and some exercises on that technology investment. The distribution centers, we have one active, and we have one that's still waiting on final development, which will be in Ohio. They will, you know, provide opportunities for us to be more efficient in the distribution of our private label business as well as our own distributed brands business, which is their primary focus in the near term. Longer term, the capabilities to service the stores with a variety of different products as well as e-commerce deliveries. We're looking forward to that as we build out the network. The primary benefit for the distribution center strategy will really be longer term. Okay. Yeah, I'll have to offline. I'm a little confused on the first one. Second question I wanted to ask is, you know, you have visibility on what's going on in the competition out there. Are kind of the competing private label retail or, sorry, hydroponics retailers trying to hang on? Is there rationalization going as the new states are opening? Are you seeing them start to open right alongside you where you're planting flags? Anything you can help us to give us about how the competitive set is going. Thanks. I think, Andrew, what you're seeing from competition right now is lessening. We haven't seen many new store groups, you know, pop up of late. We just opened a large store in Mississippi. I think, you know, we're probably the only one in Mississippi right now. I think you're seeing the doldrums straight around the industry right now. Everyone is feeling it. You heard it from Hydrofarm, you heard it from Hawthorne. You heard the degradation in their sales going on in 2022, and that's from individual stores not buying. We do believe that. You know, we hear from stores every day. You know, we have you know, we certainly have the ear to the ground and we understand what's going on in the industry, and I think the competitors are probably feeling it worse than GrowGen. Thanks. I'll pass on. We'll take our next question from Eric Des Lauriers with Craig-Hallum. Please go ahead. Great. Thank you for taking my question. You've mentioned, you know, this increasing mix of private label. You also mentioned some of these newer stores are gonna be a bit smaller than, you know, perhaps what we're used to seeing. You certainly have gone through a bit of an evolution here, and it sounds like, you know, so far in 2022 it's been, you know, sort of a cold, hard assessment with some of these noticeable changes here. I was wondering if you could maybe just give us sort of an updated kind of north star of, you know, what you guys are looking for, whether that's a, you know, a mix of, you know, e-commerce versus retail, you know, overall store sizes. Like, can you just give us a, you know, sort of high level overview of, you know, how your north star or strategy has shifted within the past six months gone? Thanks. Yeah. A couple of things, Eric. One, I don't think we've shifted that much. We have been steadfast with our private label rollouts. Looking to go from where we started, I think a couple of years ago at 2%, we're now at 11%, so we've been pretty steadfast on that. Store acquisitions this year, we have slowed down, and we told Wall Street we were slowing down store acquisitions and going to an opening platform this year, albeit much less than we thought as we work on the business and work through the downturn of this industry. Any time you see a slowdown in an industry, you need to caution yourself, and I think that's what GrowGen is doing right now. Our margins, you know, this year at 28.5% this quarter, I think was a phenomenal feat during these times. As Jeff mentioned in his call, our shipping costs this quarter were, you know, over three times the norm, you know, back past. You know, we've done a tremendous job managing, you know, supply chain, bringing inventory down and also bringing payroll down. You're looking at a $13 million drop this year in overall expenses. GrowGen's thesis has not changed. It may have slowed down for the time as Wall Street has backed out, and we do believe that, you know, the federal government has slowed the industry down for the time being. We do believe that you're in the first inning of a nine-inning game, and that's always been what GrowGen has told Wall Street, that in the early innings, you know, every once in a while, you know, things slow down, and they have slowed. We are working through it. We've kept our balance sheet strong. We're bringing inventory levels down. We'll continue to do business every day, and help the cultivators and the growers in the United States do what they do. Okay. That's helpful. Specifically on sort of private label, e-commerce and inventory, can you just kind of give me a sense of how you're envisioning all those, sort of evolving throughout the year or, you know, maybe even beyond as it relates to, e-commerce and retail? I'm just sort of looking for, you know, what your target mix of retail versus e-commerce is. You know, if we're gonna see a bit more of a push towards, you know, this e-commerce or omni-channel as you are looking to slow down some CapEx spending and, you know, conserve some costs. Maybe just kind of touch on, you know, how you're looking at your ideal mix of retail versus, e-commerce. Jeff, maybe you can just kind of comment on how we should think about your ability to, you know, further wind down inventory throughout the year? Thank you. Yeah, I'll start, and I can turn it over to Jeff. We are in the process of remodeling our online site. You will see a new rollout, you know, by year-end, hopefully sooner. As we stated earlier, we've integrated our sites, Agron and growgeneration.com. Agron was specifically a commercial ordering site. Most of its business was big build-outs. It was lighting, dehumidification control systems. That part of the industry has slowed dramatically. What we have done is we've pivoted. We are redoing our sites. I think they're in final development right now. We'll be two sites in one, both looking for business from the individual growers and the larger cultivators, but not as much weighted towards the large commercial builds. The stores, it's business as usual. You know, private label traction within our stores are up, you know, over 11% of sales and going higher. We just launched Drip Hydro, which is off to a great start, which we believe will increase our private label sales going into the third and fourth quarters this year. I believe, you know, it's business as usual at GrowGen, you know, albeit, you know, again, you know, we're waiting for a turn in the industry. As we wait for the turn, we believe we've made this company better this year. We've reduced costs tremendously. We are working on our balance sheet, and we're doing what needs to be done right now. We do believe that the industry will turn, you know. It may not be this year, it may be next year. We'll be going against much smaller comps next year. We're against the blistering comps from the first half of last year, as you all know. We'll see where the industry goes. We'll see where into the midterm elections if something gets passed on the SAFE Act or a combination of a couple of the different acts out there. We still are very positive on what we built at GrowGen. We have 62 stores and we have three different divisions of GrowGen, and they're all performing. As far as the specific inventory actions we've taken and progress we've made on the inventory side, we ended the year with $106 million of inventory, $105.6 million. That included the legacy business from 2021, as well as the acquired inventory when we acquired MMI. It went up to $106 million at the end of the first quarter and then down to $99 million at the end of the second quarter. We have seen a decline in our inventory for the retail business over time. And that retail business decline for inventory continues to progress through the third quarter. We have seen an investment that we've made on the HRG side to expand that business, and we've plateaued on that investment. In other words, we don't need a lot more inventory. We do have some timing issues when it comes to some of our private label inventory that we bring in throughout the year on a seasonal basis in preparation for peak seasons. That ends up with, you know, some variances quarter to quarter. Our plan is to continue to address inventory and keep the focus on our inventory as a opportunity for us to generate cash in the near term. Okay, great. Thanks. Appreciate the color. We'll take our next question from Andrew Chasanoff with Oppenheimer. Please go ahead. Hi, thank you for taking my question. Just in regards to top- line, behind like all the current industry noise, is there anything that gives you or anything that suggests potential rebound in sales once we get through the back half of 2022? Then I guess just in regards to Darren's prepared remarks, I guess what gives you confidence that the current sales wall is more cyclical in nature rather than structural? Yeah, the answer to that is, Hawthorne's sales were down 63% a quarter. I think Hydrofarm probably more. You've heard from our suppliers, and you've also heard from, you know, again, we understand the state of the industry. We do believe that GrowGen is holding up much better than our peers and the rest of the industry. Like anything else, you know, if you believe in the forecast for the underlying industry, which is the cannabis side of it, the cannabis growers, and you believe in the growth forecasts, the industry is in a lull right now, which will come back. If cannabis sales decline and don't go forward like forecasted, you may see some more severe issues with this industry. From everything you hear out there and from the American people, you're hearing over 75% acceptance of cannabis right now. You're still seeing states that have not built out and people unable to get cannabis, that we still believe there's tremendous traction for this industry. I think you've heard it from, you know, most of the cultivators out there, the MSOs. Everyone still will tell you that this is the early innings of an industry, and it's the making of an industry. Like anything else, it takes more than a few years to make an industry. This is, you know, it's the same thing happened with alcohol coming out of prohibition. Okay. No, that's very helpful. I guess maybe my second question is, do you guys consider like further legalization necessary for the intermediate to longer term growth of the, of I guess GrowGen or the industry as a whole? We don't. I think what you certainly will need is the SAFE Act with certain other help from the federal government. If the cultivators can't make money, it's gonna be quite hard for them to continue in business. What you're seeing right now with 280E, which is the tax ramifications to the growers and the lack of money coming in through Wall Street, building facilities is quite expensive these days. Capital has to come into the industry. Without the SAFE Act, you know, Wall Street has pulled back. We do believe that, you know, there are a bunch of different bills right now that are pending and going into the midterm elections. You know, we do believe that there is a likelihood that something does get passed that we do believe will bring, you know, tremendous help to the industry. Great. Thanks so much. We'll take our final question from Glenn Mattson with Ladenburg. Please go ahead. Hi. Thanks for taking the question. Most of them have been asked already, but just on one more on the inventory. Maybe can you just talk about the possibility of any obsolescence or anything like that? Is there a large portion of that made up of like equipment that's just not moving right now that maybe won't, you know, won't be as viable six or nine months down the road or something? What would be like the ideal days of inventory or what kind of level are you targeting as you kind of plateau at this lower level, you know, which perhaps might last for a little while? Yeah. On the obsolescence opportunity or risk of the organization, we review that on a regular basis and adjust our inventory based on lower cost or market analysis that we do, and try to position our inventory for the accounting purposes to reflect that risk. As far as opportunity to sell some product at lower than normal margin, that's a decision that we make on a regular basis. I think we mentioned that in the script, that you know, we are looking at some opportunities to discount in order to move some inventory off. Not a dramatic discount that we're selling below cost, but one in which we're aggressive in the marketplace to move product and gain market share over the course of the back half of the calendar year. As far as the opportunity for us to improve our gross margin return on investment of inventory or inventory turns, we're obviously always looking at opportunities for the right sizing of inventory. It's also important to recognize that we need to service our customers with a selection of proprietary products in our stores that are readily available. There's a balancing act between the need for inventory to maintain the sales and the market share in the marketplace versus the pure spreadsheet analysis that would define a lower set of inventory. We're constantly reviewing that and adjusting our inventory target levels based on that balance. Okay. Yeah, thanks for that color. Then just quickly on the cost cuts, would you expect those to flow through rather quickly or just some cadence on. Thanks. We expect our Q3 cost structure to reflect the number of actions that we took in Q2, and for our Q3 cost structure to be lower than Q2. Okay. Take up more offline. Thanks very much. Ladies and gentlemen, this concludes today's question and answer session. I will now turn the call back to Clay Crumbliss for additional closing remarks. Thanks, Keith. I thank you, everyone, for your interest in GrowGeneration. Please reach out to ICR with additional questions at GrowGenIR@icrinc.com. We look forward to updating you on our Q3 key results later in the year. This concludes our call. Ladies and gentlemen, we appreciate your participation. You may now disconnect.