Jushi Hldgs Inc Cl B

Q4 2021 Earnings Conference Call

3/24/2022

spk05: Good morning. My name is Laura and I will be your conference operator today. At this time, I would like to welcome everyone to Jushi Holdings Inc. fourth quarter and full year 2021 earnings conference call. Today's call is being recorded. I would now like to turn this call over to Michael Perlman, Executive Vice President of Investor Relations. Thank you, sir. You may begin your presentation.
spk02: Good morning. Thank you for joining us today for Jushi Holdings, Inc. Fourth Quarter and Full Year 2021 Earnings Conference Call. Joining me on today's call are Jim Cassiobo, Chief Executive Officer, Chairman and Founder, and Ed Kramer, Chief Financial Officer. This morning, we issued a press release announcing our fourth quarter and full year 2021 financial results. The press release along with the presentation that accompanies this call are available on our website under the investor relations section and filed on CDAR. Before we begin, I'd like to remind listeners that certain matters discussed in today's presentation or answers that may be given to questions asked could constitute forward-looking statements within the meaning of Canadian and United States securities laws, which by their nature involve estimates, projections, plans, goals, forecasts, and assumptions. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect actual results are detailed in Jushi's MD&A and other periodic filings and registration statements. These documents may be accessed via the CIDAR database. These forward-looking statements speak only as of the date of this call and should not be relied upon as predictions of future events. With that, I would now like to turn the call over to Jim Cassioppo.
spk09: Thank you, Michael, and thank you, everyone, for joining our call today. This morning, I would like to take a few minutes to provide an overview of our fourth quarter and full year 2021 performance and review our recent operational achievements. I will then turn the call over to Ed, our Chief Financial Officer, to review our financials in more detail before providing an update on our 2022 outlook. A question and answer period will then follow. Let's begin with an overview of our financial performance for the fourth quarter and full year 2021 on slide five. First off, I'm pleased to report that we completed the year with another quarter of solid top line revenue growth, increasing 22% for approximately $66 million as compared to the third quarter of 2021 and 104% as compared to the same period in the prior year. On a sequential basis, our revenue growth was primarily driven by the acquisition of Nature's Remedy of Massachusetts, which operates two high-performing adult-use dispensaries and a 50,000-square-foot grow processor facility. Continued top-line expansion across our Beyond Hello stores in Illinois. Solid revenue growth at our Beyond Hello stores in Virginia. and increased wholesale activity at the company's rural processor facilities in Pennsylvania and Virginia. For the full year of 2021, revenue grew nearly 159% as compared to the full year of 2020, primarily driven by the build-out and expansion of the company's retail store base in Pennsylvania and Illinois, the acquisition of Nature's Remedy, and a modest expansion wholesale business in both Pennsylvania and Virginia. Let's move to slide six. Our fourth quarter adjusted EBITDA of $1.5 million declined by $4.9 million as compared to the third quarter of 2021. The sequential decline was driven by increased operating expenses and we made investments to support our long-term growth outlook and the future of the business. Ed will quantify the impact in just a few minutes, but to summarize, We increased staffing at corporate as we opportunistically secured talent at the executive and management level to support our ongoing growth initiatives. In the second half of 2021, we added 32 employees at corporate, primarily in accounting, construction, and human resources departments. We also incurred additional professional fees as we prepared to convert our financials from IFRS to GAP. And we added 128 employees in retail to support our new store opening and the ramp of new stores opened in the prior quarter and increased headcount at our rural processing facilities by 130 in anticipation of increased wholesale activity. Additionally, we experienced margin compression on both the retail and wholesale side of the business due to increased promotional activity to help boost market share and brand awareness as we look to expand our branded products across our footprint. In Q4 of 2021 and Q1 of 2022, we began to substantially reduce expenses at retail and on wholesale purchases to improve our margins going forward. And we continue to refine our operations to focus on driving costs lower at retail locations and grower processor facilities. I'm confident we will continually reduce our cost per unit at our grower processors and increase operating efficiencies at retail, including through continual wholesale purchasing price reductions. Also, our margins should increase as we sell more of our own product as our grower processor facilities come online to match our large retail store platform and as we consolidate our newly acquired vertical operations in Massachusetts and Nevada. Next, I will take you through our cost-saving measures on slide seven. In the fourth quarter, we began executing on several cost-saving measures that are expected to result in significant savings in the coming quarters and will help offset some of the margin compression the company experienced in the fourth quarter of 2021. Specifically, at retail, we are optimizing our labor model, including compensation, staffing structure, scheduling, and zoning. Some of the changes we have recently made include the reduction of Pennsylvania hourly and pharmacist coverage and the consolidation of store oversight at the general manager level. These changes are expected to result in approximately $2 million in annual savings. Second, a refined retail opening process to reduce labor costs for our new store opening. And third, implementing processes that will drive closer oversight, tracking, and reporting to increase visibility and accountability at all levels. At corporate, we have substantially completed the build-out of our executive and management team, except for two new hires. With the exception of accounting, which we plan on adding additional headcount to support our transition to GAAP later this year, we have already reduced hiring across all corporate administrative functions and will look to further optimize our headcount as we grow the business. We also opened an office in Ohio to increase access to accounting talent in a cost-effective manner. At our grow processor facility and as part of the Jushi production system, all resources and materials are zealously monitored through a set of approximately 25 KPIs and opportunities for optimizing usage are identified and executed every day, including utilities modulation. From a product packaging perspective, we have value engineered our bank jars and not only eliminated carton boxes, but also changed the specifications of the jar to include information previously included on the box. We expect this to result in a $400,000 annual savings. We also have centralized procurement and launched a series of strategic sourcing tools, including an e-auction process, which addressed approximately $800,000 in annual spend. and where we have already achieved a 50% savings on average. And lastly, in our retail stores in Pennsylvania, Illinois, and Massachusetts, we have recently completed a vendor and product rationalization for our retail shelf space. This will drive better pricing and promotions for our patients and customers along with increased margins at the store level. I would now like to highlight our recent operational achievements over the next few slides. In slide eight, first, we have recently expanded the number of vertically integrated markets to four by acquiring two high-impact businesses. In the first quarter of 2022, we closed on the acquisition of Apothecarium Nevada, which provides us with our first operating dispensary in the state. The dispensary, which generated approximately $14 million in revenue in 2021, It's approximately six and a half miles west of the iconic Las Vegas Strip and neighbors Summerlin, a master plan community with nearly 100,000 residents that currently prohibits dispensaries from operating. Our acquisition of Nature's Remedy in the third quarter of 2021 expanded our nationwide footprint to seven states. and provided us with the vertical operations required to establish a leadership position in the Massachusetts market, which posted over $2 billion in sales in just over three years. We are now looking to acquire an additional adult use dispensary under the state's three-store cap and ramp up wholesale operations at our grow processor facility in Lakeville, Massachusetts. In the fourth quarter, we entered into an additional agreement to expand our operations in Nevada with the acquisition of New Leaf. New Leaf operates two retail dispensaries with a third location opening shortly, subject to final regulatory approval, all in high traffic destination locations. New Leaf also operates a 27,000 square foot cultivation facility and a 13,000 square foot processing facility. We expect to close on this acquisition next month. Both Massachusetts and Nevada markets are very vertical markets, meaning that dispensaries sell predominantly their own products. Our acquisitions in these two markets reflect that. Also in Nevada, Jushi has owned a grower processor that was operating unprofitably in 2021 and in 2022 prior to these retail acquisitions. With the volume of sales we are picking up, plus a new store opening on the Las Vegas trip, we expect that by the third quarter, this grow processor will be profitable, and we will likely look to expand the canopy at this facility to add production in 2023. We expect most, if not substantially all of our production can be sold in our own stores, even after this expansion. This means we have an opportunity to add more canopy to address the wholesale market in the future and have some further opportunities to do that in the existing license footprint. In Illinois, we were awarded a conditional retail dispensary license through our partner, Northern Cardinal Ventures. and have a substantial M&A pipeline to expand our retail footprint from five stores to the state cap of 10, and we are targeting several processor license opportunities. In Ohio, we were selected in the retail lottery and are awaiting certification and issuance of licenses by the Ohio Board of Pharmacy. This retail location will complement our newly acquired Grove facility, which expects its first harvest in the second quarter of 2022. our operational processing facility. We will also pursue additional retail licenses as we have the opportunity to add another four stores under the state cap. Ohio so far has been an unprofitable market in startup phase for almost 12 months for Jushi. We expect to turn profitable as we scale our vertical operations in the state. On slide nine, Second, we nearly doubled our operational store count to 28 locations, opening 13 locations from coast to coast over the year. In Pennsylvania, we opened eight Beyond Hello locations, including three in the fourth quarter alone, bringing our affiliated subsidiary operating store count to 18. In Illinois, we opened our fourth location and our second store in the Bloomington Normal metro area. We also opened our second location, Virginia, and acquired two stores in Massachusetts and two in California. Subsequent to year end, we remodeled and reopened our Bethlehem, Pennsylvania store and have plans to remodel certain stores across our retail footprint to ensure we are providing a differentiated and best-in-class customer experience. Additionally, as part of an acquisition of Pennsylvania, we acquired a store in Scranton that was poorly located and very small. We have recently received approval from the Pennsylvania Department of Health to move this store to Dixon City. This move will be akin to adding a new store given how poor the performance was at this prior location. We are also consistently improving both our in-store and online shopping experience to ensure the unique needs of our consumers are being met. In 2021, we implemented delivery services in Virginia, which accounted for close to 11% of Virginia's transactions in the fourth quarter. We also just launched a complete redesign of the Beyond Hello website. Powered by a new edge architecture, the website's latency has improved by two to three times, and we've already seen nearly a 1% increase in conversion rate in the two-week period since the soft launch. New online menu enhancements, such as data-driven programmatic product placement, get customers to what they want faster. We even saw two back-to-back record online sales days since the relaunch of the site. After excessive analysis of user behavior and the candidate's patient and customer's digital journey, We've successfully created an experience even more frictionless and meaningful through UI, UX, and technology optimization. Design thinking is a cornerstone of the Juicy organization as we consistently iterate and improve in every aspect of the business. As part of the new website rollout, selected stores and states will start to introduce the new Beyond Hello identity, featuring the new fresh look, which is part of our longer-term strategy for a national cannabis retail brand. Let's now review our store opening schedule on slide 10. In 2022, we plan to open a total of 10 stores, including four in Nevada through acquisitions of Apostate Carryman Newly, three in California, including a relaunch of newly renovated Palm Springs dispensary we had closed earlier this year, and three stores in Virginia, two of which are expected to open by late summer. In 2023, we expect to open our sixth and final store in Virginia, our fifth store in Illinois, the move to the Dixon City Store in Pennsylvania, and our first dispensary in Ohio. In both 2022 and 2023, our store count opening numbers may be bolstered by M&A. Our goal in 2023 is to add at least another 10 new stores through acquiring retail licenses in Illinois, Ohio, Massachusetts, and Nevada. Additionally, we hope to move two more retail locations in Pennsylvania, which may give us the revenue growth comparable to a new store opening. Moving to slide 11. Third, we bolstered and expanded our cultivation and processing capabilities with the addition of various assets across our core and developing markets. As of year-end 2021, we operated approximately 248,000 square feet of cultivation and processing capabilities, including approximately 59,000 square feet of canopies. In addition to our entry into the Massachusetts market, where we added a 50,000-square-foot facility and approximately 33,000 square feet of canopy, we also expanded our operations in several high-growth, limited-license states over the course of the year through various full-time acquisitions. The first being Franklin Bioscience Nevada, LLC, where we added cultivation, production, and distribution license to our portfolio of directly-owned assets. And the second in Ohio, where we acquired a licensed cultivator operating a 10,000-square-foot facility in Toledo, which complements our 8,000-square-foot processing facility in Columbus. We expect our first harvest in the second quarter of 2022 and have plans to increase the canopy from approximately 1,900 square feet to over 10,000 square feet pending regulatory approvals. Additionally, at our Scranton Grower Processing Facility in Pennsylvania, we acquired several adjacent parcels of land that will allow us to scale up the facility and expand capacity as we prepare for potential adult use sales in the Commonwealth. And in Virginia, we acquired a 93,000-square-foot cultivation facility and nine acres of surrounding land in Prince William County. attractively positioning juice sheets for the continued ability to supply the flower market and plant adult use sales. Moving to slide 12, we are also making progress with phase one of the build out of our Virginia facility that will expand existing capacity from 30,000 square feet to 93,000 square feet. We expect to add new grow rooms in Lake Q1 early Q2 and begin generating revenue in late Q2 or early Q3 of this year. We believe this expansion is appropriately sized to service the current and future demand of the medical market in Virginia. We are also in the design phase of a second connected building that can increase the facility's total square footage up to approximately 263,000 square feet. However, we will not make a final investment decision on this expansion until we have visibility into the timing of the rollout of an adult use program in the state. Additionally, we continue to build out and redesign of our Scranton, Pennsylvania facility. Phase 1 of the build-out, which will expand the facility footprint from 81,000 square feet to 123,000 square feet, is expected to be completed by the end of the second quarter and begin generating revenue in the third quarter of this year. This expansion positions us well to support the 156 dispensaries currently operating in Pennsylvania's medical market, including our own 18 operational Beyond Hello dispensaries. Pending favorable regulatory developments in the Commonwealth, including line of sight on the potential adult use program, we would plan to commence stage two of the expansion, which would increase the total square footage of the facility from 123,000 square feet to approximately 210,000 square feet. We also have the option to significantly expand the facility to approximately 350,000 square feet to address future market demand. At the end of this year, including the new leaf Nevada acquisition, which we plan to close next month, we expect to be operating approximately 330,000 square feet of cultivation and processing capacity across all of our facilities, including approximately 98,000 square feet of canopy. Moving to slide 13. We continue to strengthen our balance sheet to maintain financial flexibility and support the build-out of our operational footprint along with our M&A efforts. In the fourth quarter, we secured a $100 million acquisition facility with a 25 million accordion feature. from Sunstream Bancorp, a joint venture sponsored by Sundial Growers. We also filed a $500 million Canadian preliminary base shelf perspective to offer the liquidity to support potential rapidly arising accretive opportunities in our M&A pipeline. Since securing the facility, we have drawn down $40 million to finance the cash portion of the Nature's Remedy acquisition. Subsequent to the fourth quarter, we closed an equity private placement for total proceeds of approximately $14 million, demonstrating continued confidence in Jushi's vision and future strategic plan. Next, as illustrated on slide 14, we expanded our brand portfolio by debuting a full suite of high-quality, high-end demand products, including flour-based concentrates, edibles, and extracts across our five best-in-class brands, the Bank, the Shea, the Lab, Tasteology, and NeuroPlus. Over the past year, we have grown our product offerings across five states and look to continue this growth as we expand our operating capacity through cultivation, manufacturing, and the continued rollout into several high-growth adult use and medical wholesale markets. Our goal is to enhance recognition of QC's mainstream CPG brands across our national footprint as we look to increase access for patients and customers alike. Now on slide 15, and lastly, we enhanced our leadership and management team with the appointment of Ed Kremer to Chief Financial Officer, Leo Garcia-Berg to Chief Operations Officer, Brendan Lynch to EVP of Retail Operations, and Bob Young to EVP of Information Technology. The wealth of experience and talent this group brings to Jushi is second to none, and we are extremely pleased with the contributions to date. Let's move to slide 16. As previously reported, and including access under definitive agreement, we concluded 2021 with operations across seven states, including 39 retail licenses, of which 28 were operational, three vertically integrated markets, and approximately 248,000 square feet of cultivation processing capacity. For the year end 2022, we are targeting approximately 50 retail licenses across seven markets we operate today, with additional locations to be added through either application or acquisition. We also plan to be vertically integrated in at least five markets and operate approximately 330,000 square feet of cultivation and processing. I'm extremely proud of the team we have assembled and the platform we have built over the last four years, and I'm confident that Jushi is well positioned to execute on its growth plans for this year. Before I ask Ed to review our fourth quarter and full year 2021 financial results in more detail, I would like to provide a program status update for Virginia and Pennsylvania markets. In Virginia, the Board of Pharmacy has registered its 50,000 patients and has a current backlog of 12 to 15,000 patients. And during the recent legislative session, the General Assembly took steps to improve efficiency for patients and operators participating in the medical cannabis program. HUSHE looks forward to the conclusion of the legislative process and the implementation of several important changes that will improve the program generally and continue making medical cannabis more accessible to patients in need. In Pennsylvania, the Department of Health is working to implement the many program improvements set out in June 2021 through Act 44. While there's some disagreement about how this new law is interpreted, we remain committed to bringing a stable supply of safe, high-quality products to over 600,000 certified patients in the Commonwealth. I am also pleased to report that the Senate Law and Justice Committee completed its third of three adult use cannabis hearings on March 14th, and we look forward to seeing a filed viable adult use bill in the near future. I would now like to ask Ed to review our financial results before we discuss our 2022 outlook. Ed?
spk08: Thanks, Jim, and good morning, everyone. Before getting started, I would like to remind everyone that the results that we'll be going over today can be found in our soon-to-be-filed financial statements and MD&A for the year-end December 31, 2021. All results are stated in U.S. dollars. Let's begin on slide 17. As Jim previously mentioned, revenue in the fourth quarter increased 22% to $66 million compared to $54 million in the third quarter of 2021, and increased 104% from $32 million in the fourth quarter of 2020. The sequential increase in quarterly revenue was driven by the acquisition of Nature's Remedy of Massachusetts and continued top line expansion of our Beyond Hello stores in Illinois and Virginia. Revenue at our stores in Pennsylvania was essentially flat on a sequential basis. Also contributing to the sequential improvement in revenue was an increase in wholesale activity in the company's growth processor facilities in Virginia and Pennsylvania. Full-year 2021 revenue increased 159% to $209 million compared to $81 million in 2020. The year-over-year increase in annual revenue was primarily driven by the build-out and expansion of the company's retail store base in Pennsylvania and Illinois, the previously mentioned acquisition of Nature's Remedy, and a modest expansion of our wholesale business in both Pennsylvania and Virginia. Our adjusted gross profit was $26 million in the fourth quarter of 2021. an 8% increase as compared to the third quarter of 2021, and a 76% increase as compared to the fourth quarter of 2020. On an adjusted basis, Q4 2021 gross margin of 40% declined approximately 510 basis points and 650 basis points as compared to the third quarter of 2021 and the fourth quarter of 2020, respectively. The decrease in gross margin was primarily driven by price compression in our largest markets of Pennsylvania and Illinois, and at the wholesale level due to increased promotional activity as we continue to build out our brands across state markets. The company recorded additional period end adjustments related to the establishment of reserve for expiring product and plant attrition incurred in the normal course. Full year 2021 adjusted gross profit was $92 million, or 44% of revenue, compared to $38 million, or 47% of revenue, in 2020. While Q4 saw gross margin compression into year end, Across certain markets, including Pennsylvania and Illinois, we have worked diligently with our vendors and suppliers to share the impact of price compression going forward. In Pennsylvania, for example, we've seen over a 200 basis point increase in gross margin on a sequential basis in Q1, while Illinois has seen a similar improvement. Furthermore, following seasonal slowness at the start of the year, we've seen a reacceleration of sales growth into March that we expect to continue into Q2. and which should increase our operating leverage, and combined with gross margin improvement, our resulting adjusted EBITDA margin. SG&A expenses in the fourth quarter of 2021 were 38 million or 58% of revenue, an approximate 14 million increase as compared to 25 million or 46% of revenue in the third quarter. The increase was driven by an approximate $4.5 million increase in labor and staffing, cost to support our ongoing expansion, including growth in both retail network and build out of our grow processor operation. Specifically, we added key personnel at corporate within accounting, construction, and human resources to support our strategic initiatives, incurred startup expenses related to increased headcount ahead of new store openings, and the ramp of stores opened into the prior quarter. And we also experienced an increase in startup expenses at our growth processor facilities in Massachusetts and Pennsylvania as we added staff and incurred operational expenses prior to the commercialization of our wholesale business. Other operating expenses increased $1.4 million driven by technology and associated costs to support our expanding footprint. For the fourth quarter 2021, adjusted EBITDA was $1.5 million as compared to $6.4 million in the third quarter of 2021. Adjusted EBITDA was impacted by the increase in operating expenses, as discussed earlier, in addition to slowed growth in gross profit due to retail and wholesale margin compression. Full year 2021 adjusted EBITDA was $17 million, an increase of $60 million compared to $1 million in 2020. Fourth quarter net income was $9 million, or $0.05 per basic share, with net loss per diluted share of $0.14. The net loss of $0.14 per diluted share in the fourth quarter was primarily due to the dilutive effects of the derivative warrants as accounted for on the IFRS. The fair value gain on the derivative warrants is removed from the basic earnings to calculate diluted net loss, which is then divided by the diluted weighted average number of shares. Full year 2021 net income was $25 million, or loss of 40 cents per diluted share compared to a net loss of $212 million or a loss of $2.11 for diluted share in 2020. As compared to the prior year, net income increased $166 million from the fourth quarter of 2020. Moving to the balance sheet and cash flow on slide 20, we ended the year with $95 million of cash and cash equivalents in the balance sheet, which includes a net $12 million legal settlement gain in the fourth quarter. but does not include the $14 million private placement that occurred subsequent to quarter end. We ended the year with $52 million in inventory, inclusive of approximately $11 million of biological assets. This represented a $13 million improvement from the prior quarter driven by operational improvements and inventory turnover while increasing our sales substantially. We had approximately $147 million principal amount of total debt, excluding leases and property, plant, and equipment financing obligations. but including the previously mentioned $40 million drawdown from the $100 million acquisition facility to finance the cash portion of Nature's Remedy acquisition. Current availability under the acquisition facility is 60 million, and we have the ability to increase the capacity of the facility by an incremental amount of up to 25 million. The company incurred approximately 74 million in cash capital expenditures during the year, reflecting investments related to the build-out of our retail store footprint, the purchase, and build out of our grow processor facility in Manassas, Virginia, and the expansion of our grow processor facility in Scranton, Pennsylvania. Given the uncertainty around timing of regulatory approvals and construction delays for the full year 2022, we expect to incur approximately $40 to $60 million of capital expenditures, of which a portion will be funded by an existing financing relationship. As of March 24, 2022, Our issued and outstanding shares were approximately 190 million, and our fully diluted shares outstanding were approximately 277 million. And with that, I would now like to turn the call over back to Jim to discuss our 2022 outlook. Jim? Thank you, Ed.
spk09: Let's take a look at slide 21 and slide 22. 2021 was a very successful year for Jushi. We put a significant amount of work to build out our platform and expand our strategic footprint across the U.S., We scaled our operations across both our core and developing markets and now reach consumers and patients across seven states. Our concentration on limited licensed states with favorable regulatory development has allowed us to purposefully grow our presence and build the scale and infrastructure required to aggressively execute in these high-growth markets. As I stated in the past, it is our purpose to establish Jushi as an industry leader and demonstrate what really sets us apart from our competitors. And with a new year upon us, we are in a better position than ever to do this. After reporting strong sequential revenue growth in the fourth quarter, we are experiencing a slowdown in revenue as we begin the year, which is consistent with what other MSOs have reported to date. The headlines include the following. Seasonality across our retail network following the holiday season. Ongoing inflationary pressures, which have universally impacted consumer discretionary spending budgets. Lingering safety measures due to the onset of the Omicron variant, which led to store closures and reduced hours across our footprint. Significant store closures due to snowstorms, which also may be part of the seasonal weakness we saw in the first quarter. The recall of selected vape cartridges by the Pennsylvania Department of Health and regulatory delays in bringing our high margin hydrocarbon extracted products online to Pennsylvania, which has prevented us from expanding our offering across our robust store network in the Commonwealth. Furthermore, due to a combination of regulatory delays, supply chain issues, and contractor shortages, the build out of our grower processor facilities in Virginia and Pennsylvania have experienced unexpected delays over the three months. However, as we move further through this post-COVID environment, we look to forge ahead and restore construction levels back to normal as more resources become available. On the M&A side, in addition to the delays in closing on Nevada acquisitions, we have proactively slowed down the deal activity. We have been prudent due to volatile market conditions, including weak capital markets and unrealistic price expectations by sellers of assets across our target footprint. Jushi's industry-leading revenue growth rate force us to have a higher bar when it comes to valuation, as the sellers typically are exchanging lower growth assets for participation in Jushi's growth potential in 2023 and 2024, as we anticipate Virginia and Pennsylvania to transition to adult use And as we complete our vertical and retail build-outs in Illinois and Ohio through license acquisitions out of a large pool of newly issued licenses. Additionally, in Virginia, we expect a delay in adult use sales to impact our 2022 results. However, as I mentioned earlier, we are hopeful that the Virginia Board of Pharmacy will swiftly find a solution to the currently overburdened medical cannabis program, which has limited access to patient-seeking products. Increasing the flow and availability of more product formats will also help fuel the displacement of the illicit market, which is estimated at $1.8 billion in Virginia. As a result of these expected headwinds, we are revising our previously provided guidance range to an annualized fourth quarter 2022 run rate. We now expect fourth quarter revenue on an annualized basis to be between $375 to $425 million, and adjusted EBITDA to be between $70 million to $90 million on an IFRS basis. Looking ahead, we've identified three strategic priorities over the year that I will review on slide 23. First, we remain focused on expanding our strong retail network. In 2022, we expect to add up to 10 Beyond Hello locations and potentially secure additional licenses and locations through either applications or acquisitions. Next, as previously mentioned, we will continue to build out our cultivation of processing capacity in Pennsylvania, Ohio, Virginia, Massachusetts, and Nevada, which will allow us to become a more vertical business as we sell more of our own products to our own substantial retail footprint. As we become a more vertically integrated company in the coming years, our margins should look more like the margins of more mature, larger, vertically integrated companies in the industry. And lastly, we will continue to identify creative opportunities to expand our business and increase our competitiveness. We will look to uphold our best in class track record of acquiring high value assets at attractive prices, all with the goal of creating sustained value for our shareholders through mergers and acquisitions. I'm pleased with our performance and execution to date and with the continued progress we have made to strengthen our platform. As always, I would like to thank our team for their hard work and continued dedication to making JUCHI what it is today. And with that, I would like to thank everyone for their time today. Operator, please open the call for questions.
spk05: At this time, we will be conducting a question and answer session If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question comes from the line of Russell Stanley with Beacon Securities. You may proceed with your question.
spk12: uh good morning and uh and thank you for the color maybe if i could start on uh pennsylvania uh jim given your your comments around a bill expected to be uh to be filed in the near term i guess what are your latest thoughts around uh timeline for implementation and when you think that might uh might take hold and i guess secondly uh i guess preliminary thoughts as to uh how that market will look you do you envision something like a new york like priority for social equity or more of a New Jersey approach with incumbents allowed to open first? Thank you.
spk09: Thanks, Russell, for your question. You know, I don't like to comment on the political process because we're involved in the political process very, very actively. But, you know, the timeline, I would just note, I'll give you my sort of macro thoughts and the prelim thoughts on, I can't, you know, I'm not going to comment too much on the politics. But what I'll say is that when you look at Pennsylvania with 155-ish stores, right, and we have growing processor capacity that is, you know, substantial. it's much different than other states, like even Illinois, that only had 155 dispensaries, right, and less grower processor capacity, or New Jersey, which had almost no stores. I mean, I know there's like 15 or whatever it was when it was medical, and much lower, I mean, significantly, almost no grower processor capacity, just to point to the extremes. So when you look at Pennsylvania, It is, it has the capacity to absorb adult use without crowding out medical patients, right? It has a vast program, right, that has 600,000 patients. And it's been a very, very successful program. You know, the growth rate of the medical market has been much, much better than the growth rate in even Florida, I believe. And so it's one of the best states out there for a large state in terms of the take-up of the medical program. So when you look at the ability and the number of stores out there, the growth processor capacity, the expansion plans of the growth processors that we all have that we're holding out to wait to see what happens. And I would say that we've seen some bipartisan work. You know, the Democratic governor, Republicans controls one of the houses. And I think there's a real balance of what the program will look like, and they all have to compromise. And Pennsylvania has a long history of being bipartisan. And I do believe that, you know, I'm fairly optimistic that we can get something done there.
spk10: That's great. Maybe just one more.
spk12: Maybe if we could, just one more on Virginia. Wondering if you can update us on the performance of the second store and whether the performance there validates your choice of going to a larger layout with the additional openings you plan for this year. Thank you.
spk09: Yeah, I would say the limitation of Virginia really has been related to the patients getting cards. Remember, there's 12 to 15,000 waiting. The Board of Pharmacy has recognized that and, you know, is taking measures to improve that. I'm very optimistic that we can get something done there to try and get the, you know, the number of patients increased quite dramatically. So the only hold back in the medical market, in my mind, is that. I think we're ready with our growth process. We have room sitting there. We were subject to some crazy regulatory delays on that, unrelated to the Board of Pharmacy, but just some local stuff. But it's brand spanking new and looks fantastic. And then I think some other of our competitors in the state have a lot of capacity. So we have the capacity to serve the patients. Our stores have much higher capacity than what they're doing. Our new Sterling store is doing about a $6 million run rate, which could be vastly higher, you know, very, very quickly. You know, it's tremendous parking. And the other thing that limits the stores, you know, initially in the uptake of the stores in Virginia is that, you know, there's a very strict law on marketing and advertising, stricter than we've seen in other states. So you just can't paste up billboards and, you know, just blast out, you know, hey, here we are. So it's just, you know, a lot of it's word of mouth on our website. So that's going to cause it to go a little bit slower besides the card issue. So they're slower than I would have liked for sure. But there's just tons of capacity there to serve patients, both at the store level and the grower processor levels in the state. And I'm very optimistic, it's hard to predict, that these stores are going to achieve, you know, very, very satisfying numbers from a medical market on a revenue per store basis. Some of the best, like, I, we have a potential to have some of the best in the country.
spk10: Next question operator. Oh, Russell, I'm sorry, I didn't know you were still on. Do you have any more? No, that's it. I'll get back in the queue. Thank you.
spk09: Great. Thank you. Next question, operator.
spk05: Our next question comes from the line of Bobby Burleson with Canaccord. You may proceed with your question.
spk11: Yeah, good morning. Maybe this one's for Jim. Curious, just any components behind the revenue and EBITDA guidance where you think you're being a little bit more conservative, you know, where there could be some upside this year?
spk09: Yeah, thanks, Bobby. So, yeah. Yeah, I would say there's definitely areas where we're being conservative, but there's also we've shown to get surprised on the downside. So there should be an offset. You know, I would say, again, I'll continue to say that the hardest part to predict in my mind of all our states is really Virginia. because of this patient and some improvements that can go. So, you know, I think we're being, I think we're finally being more conservative on that. I would hope there's upside there, but we'll see. We haven't been right in that direction since we projected Virginia. But, you know, this, you know, what can happen there to speed up the access for patients through issuing, you know, the access to patients. And so there's not such delays. I believe, you know, could be, you know, very helpful for our business. And then, you know, we'll see how it goes. You know, there's some regulatory stuff and trying to get it so we can let them know where the stores are as well. So those are kinds of things we're looking for that, you know, it's hard to predict when those. I would say the slowness that we've seen for the industry, I think, You know, I haven't listened to the conference calls, you know, some of the people who reported before us, so I don't know exactly what's been said. But I will say that one of the things that there's been regulatory delays more this year than I've seen in our footprint, you know, and I'm sure, you know, and part of that is, you know, obviously COVID, we have the Omicron scare, you know, the departments are unfunded, and they've been dealing with COVID, the predominantly health departments, right? and they have to do the work related to the COVID stuff. And it just keeps hitting them. It's been a couple of years of these. These people are probably exhausted from all of that, right? And it also gives a nice excuse as well, not saying that people are using that in our footprint, but there's also, hey, I've been dealing with COVID. So I would say that the regulatory stuff, just little things of implementation have been slower than we would like to expect. I think it's across the country. You know, in their defense, I believe that money is an issue, that COVID is an issue. And so, you know, as that, you know, so we've kind of been somewhat conservative on that because that's a large part where we've been wrong on our grow processors getting approved and, you know, the new expansion and some of these things in retail that would make, you know, the markets better. You know, M&A is another area, you know, the question is, you know, we're sitting here in March now. You know, I've, you know, the sellers, you know, in my mind, have not adjusted to the stock market. And they have adjusted to the fact there's less purchasers are out there. You know, we saw this big deal yesterday with Cresco and ColumbiaCare. You know, I love that for Jushi. There's two buyers now who are sort of out of the market. They were good buyers. So now they turn into sellers, you know. So I believe, you know, and substantial sellers, you know. So I believe that the M&A market is coming our way. I think our discipline is paying off. So I'm happy to give up some revenue growth, you know, for long-term value for our shareholders to getting the right deal at the right time. from the right seller and i believe if sellers you know haven't figured out how to price their assets they will figure it out soon with these four signatures i mean it's getting to the point where how many people can buy ohio assets figure it out right how many people can buy illinois assets Figure it out. Whether it's world processors or retail, I hate to be the bearer of bad news for these sellers, but figure it out. You know, I mean, like, if you want to sell your assets, that's great. If you want to open them up and struggle, go do that. And by the way, retail only. Don't forget about 280E taxes, my friends. The free cash flow could be very, very limited. So we know what the value of these assets are. We're not willing to overpay. We hope to surprise you on the upside, but we'll see.
spk11: Great, great, great color. And then maybe just on the cash flow, Ed, it seems like you've been able to drive some nice operating cash. I'm curious what the main sources are and kind of what you think the opportunities are this year.
spk08: Thanks, Bobby. Look, I appreciate the question. I think in the fourth quarter, we generated $15 million of operating cash flow. And a lot of that, $10 million of that, came really from an improvement in our inventory turns. So we're very proud of being able to take our weeks on hand down. If you think about our inventory decreased by about the same percentage, about 20%, relative to our growth of about 22%. So a huge improvement in our weeks on hand. And the other five came from just better management of working capital. I think, look, It's hard to take inventory down any further, so I think that you saw that hit, sort of that pickup in the fourth quarter. We hope to continue that trend and continue to improve on our overall working capital.
spk09: Thanks, Ed. I just want to point out, Bobby, while I have that question, you know, adding to that, you know, we started to manage the business better, you know, from an expense and inventory turn altar.
spk10: Right?
spk09: We opened, we doubled our store base practically last year. That's huge growth. And we're building these huge growth processes. How much CapEx did we spend last year? Like $74 million, right? That's as big as the big boys, right? And so massive expansion. We had to hire a lot of people. So we had all this management that came in place at the very senior levels, and they built out their departments. So we've gotten better, I think, quickly or on time, maybe a little late, but not drastically late, right? And so as we move through the year, you're going to see we announced that we haven't – I noticed some of the other operators announced that they were cutting costs. We've already done it. We just said, oh, okay, boom. We started the program in the fourth quarter on the purchasing side. That's a very, very dramatic cost savings program. of a lot of money, especially in Pennsylvania, but also in Illinois. We're a big retail purchaser. We have great respect and admiration for our vendors, but they have to play ball. We knocked almost eight vendors off our shelves in Pennsylvania because they didn't want to play ball and that's it, they're gone. And we give that shelf space to other vendors. We wanted to play ball. And so, you know, and then in terms of, you know, opening stores, we were so busy doing that. We got them open relatively on time with all the regulatory shenanigans that goes on with the COVID and everything else that I mentioned. And so we got them open, and we've learned how to do that more efficiently toward the end of the year. So we will open stores much more efficiently. Instead of using approximately 25 people per store, we can do 11 people per store. And we can do a better job of varying it for ones we think are going to open quicker and have more knowledge of how the store should take off quicker and which ones may be a little bit slower. Things like that, it's hard for me to give you an estimate of what that means, but believe me, it's real. Things like we did some things where we made some small mistakes. Ohio, we staffed up, and then the regulatory stuff just really hurt us, and we sat there too long with unproductive employees that we were paying. So we're going to be going through each month in the next two or three months, and you'll see some more cost cutting. And that could be an upside to what you're saying. But like what we did with inventory turns, you're going to see us on the cost side. You know, I was wading through hires last year. We raised almost $200 million, you know, when there was a bull market. And we had the ability to grow our team that we hadn't seen for a while. So we went and did that. And now we're going to go back and figure out where we can prune you know to get to get more efficiencies in the system and of course we'll keep growing expenses over time but the pace of it will slow and certainly in some areas it'll decline okay so i want to point out that the inventory returns is a great example we're going to continue on the cost side great thanks for all the color our next question comes from the line of kenrick taig with atb capital markets you may proceed with your question thank you and good morning
spk07: Jim, I wonder if you could speak to not just the pricing pressure, but that promotional intensity, how that evolved through the back end of the quarter, because that certainly seemed to be where we saw pressure increase, or at least based on peer reports, the pressures on the consumer certainly start to be felt late in the quarter. And to the extent you're willing to comment, how has that impacted your guide for 2022 in terms of that margin or all that gross margin outlook? It certainly doesn't read as if there's an expectation of any marked or material recovery in gross margins given the backdrop. Any color there would be great. Thank you.
spk09: Yeah, I mean, thank you, Kendrick. I mean, getting to Bobby's, you know, point about where the upside is, you know, we've significantly cut our purchasing costs. So, in other words, you know, we're a big, you know, unlike some of the other companies, we're different. We're a much higher percent of retail, but which we will change. You know, we're looking to, you know, if you want to look at our margins overall, whether it's gross or net, but really on the EBITDA margin, you know, You know, it's going to trend much more of a vertical company, like pick a GTI who does a lot of disclosure between retail and wholesale, where they break out retail, wholesale, so you can play with their margins. And you can see, like, where we would go as we increase, you know, as we increase our wholesale, our own products sell through to our own system. which is much lower compared to most people, just because we have to expand these facilities just to provide that. We don't have it. And we were a retail-only company at first, which was great on the M&A side. We saved our shareholders a lot of money purchasing assets, no question. But on the margins, you're being much more long-term oriented. Now, we're getting there. We set all the canopy we're building. I think we'll match. If you look at these industry leaders on vertical, we'll match what's out there. Whether it takes us 12 or 24 months, we'll get there. And so, you know, when you focus on margins, I would focus on that. You know, that's a big move. That's a structural move in our company. In terms of pricing pressure and promotional pressure, I would note what it felt like to me was we were promoting, you know, in the third quarter, late in the third quarter, our usual promotions and into the fourth quarter, right? And we noticed the effect wasn't there. With our promotions, we would drive traffic and gross profit. profit dollars not percentages would go up and we'd have these measurement tools to figure out if they were effective or ineffective promotions you know and it was a red or green it was it's clear the way we were looking at it right and what happened was it it started going red but you know we could have could have definitely been six weeks maybe eight weeks better and you know figuring this out and adjusting but what we did when we figured it out and had you know got up to you know my desk is we we went and renegotiated our purchase price contract and said no no no You got to – if you want to be on our shelves, you got to cut your price. And it was substantial, you know, and that's it. We have 18 stores. We are a big part of the market, a large percent, and we were able to successfully do that. So, you know, what it means in our margin, you know, gross – where we are in gross and, you know, net, we are building back our margin because we – I think we've probably hit our nadir in the –
spk08: Third quarter in March, we saw it, right, Ed? Yeah, we started to see basis point improvements at a pretty good clip going into the first quarter and certainly into March.
spk09: Yeah. So our margins are recovering. You know, January and February, I think one of the things that people don't understand and they don't talk enough about is the seasonality in business. I'm getting quite sure that January is the weakest month of the year. Just think about it. You know, your January resolution, the Peloton bike, the snow comes. Snow storms have come. You know, you're not going out. The stores are closing because of snowstorms. That happens all the time to us. It happened this year in space. And so that's a bad month. February, you know, now you're the polar bear. You're in there for the winter. You're not going out as much. You're not doing as much, right? And you're missing your trips to the store. And then you also spent all your money in Christmas, right? I mean, you bought people presents. You bought yourself presents. You've overspent. And you've joined our promotions that we give for Christmas as well. So those are weak months. And so, you know, I would say that, you know, March is a big tell for us what happened. And, you know, we're not through March yet, but it's a big tell. And I'm quite instructed that our margins are – we're building back up our margins. And we plan to cut more costs as well.
spk05: Our next question comes from the line of Ty Collin with A Capital. You may proceed with your question.
spk00: Hi, thanks for taking my question here. Given some of the challenges we've seen in those individual markets like Pennsylvania, which can really kind of weigh down on company-wide performance, I'm wondering if you could share thoughts on geographic diversification as a consideration when you're thinking about your investment decisions, kind of weighing spending between your existing footprint versus expanding into new markets, for example. Thanks.
spk09: Yeah, Ty, thank you. That's a very good point. You know, I think we've done a good job of diversifying. So we're, you know, we're now in the Massachusetts markets. We're also in the Nevada market in a pretty big way when we closed this deal in April with New Leaf. We're vertical now with Popsicarium. So, yeah, I mean, we've been slow. So, yeah, geographic diversification sounds great in theory. Then what's the price I got to pay for that today versus, you know, yesterday or two years ago? So what we've done is generated shareholder value by being disciplined and not rushing. And right now, the world's running out of buyers. I mean, ColumbiaCare and Cresco, guess what, people? They're sellers. They were buyers. Okay, so patience pays off. We were very concentrated to PA in Illinois. Now we have PA, we have Illinois, Massachusetts, and Virginia is going to blow people's minds over the next couple of years, I believe. And we're making a big bet on that. I mean, we have a lot of capital there, right? I mean, I don't throw around capital. How much money have we put into Virginia? These facilities and I mean, this is a lot of money. It's a big bet. Okay. So, so I think we are diversified smartly and we're going slower, much slower, slower approach, but you know, you know, and, and, and there is an odd example of a market where it was going to be hard to get into in a big way, like Arizona until they changed the laws, which they probably will. You know, and, and, and so, so, but, but, but that's okay. It's 5 million people in Arizona. Okay. All right. They could have all that. But there's 330 million people in this country. So there's plenty of opportunities to expand geographically. I would note that, you know, what you're seeing in PA is because all the MSOs came in, and by the way, we got great prices, remember. We bought 18 dispensaries for $80 million, right? And regularly, some of these bigger players are spending between 50 and 130, including earnouts, for three dispensaries, right? So, but they're all coming in because it's going to be a great adult use market, and that takes time. That's a transitional thing. And, yeah, there's a little bit more capacity, but there will be product shortages when that flips over, in my view. And so, you know, I like our geographic concentration, which is not that concentrated. We're in seven states and getting pretty big in all of them except for California. But I like our concentration because you get the most exposure to PA, which is going to flip. You get the most exposure to Virginia, which is, you know, mana from heaven eventually. And so, like, I mean, I like that as a shareholder.
spk05: Our next question comes from the line of Andrew Semple with Echelon Capital. You may proceed with your question.
spk04: Good morning. Just first question here on the guidance and the EBITDA margins. If I look to the midpoint of the prior guidance range, it would have implied about a 30% EBITDA margin, whereas the midpoint of new guidance range would imply a lower 20% EBITDA margin. And I'm trying to mix and match that with your comments that you feel you are rebuilding your gross margin profile kind of beginning towards the end of the first quarter. I guess, are you seeing increased offbacks? kind of persists throughout the balance of the year? Or do you think maybe margins exiting this year could have been lower than previously anticipated?
spk09: Andrew, I think it's a timing issue for the most part, the big move. And, you know, we obviously noticed this ourselves and analyzed this. And we have like a slide that we're not sharing that we're looking at. And John is going to, John, my president, is going to take you through this.
spk06: Hey, Andrew. Basically, the difference is the time or the point at which we have the full benefit of the vertical margins as we expand our GPs and then push that product both through our system and into the wholesale market. And so previously, the guidance for the year assumed that that was going to happen in the year. And so that 30% margin or so assumed that the sort of full benefit of verticality, which we see from our peers, etc., What's happening now is that the fourth quarter exit is better than obviously current, and there's an improvement over the course of the year that's definitely back half-weighted because that's really when our expanded GPs are coming online. But we don't have the full benefit of that in the fourth quarter. So the margin improvement into, let's say, where you're saying the 20s from the 30s, That's not the end of it. That is just midway through that improvement that will continue into next year and definitely benefit further, obviously, if and when the adult use expansion happens in states where we have the largest GPs for us, which are Pennsylvania and Virginia. And so, you know, basically, we still expect to get to those full vertical margins. It's just pushed out.
spk09: Yeah, I want to point out just because this is an issue we had trouble explaining, you know, we were going back and forth on how to explain this. And I think it's an important issue. So when you look at the scale of a company, so look at the comps that give you verticalness data, like Ascend and GTI, and look at as they go from retail to vertical, what happens to their margins as they get to scale. So look at GTI's numbers from 19, 20, 21. You know, as they get to scale, what are their margins, right? Why would we be different? We're going to get to that target of that balance, right? We're going to get there. I guarantee you that. I can't guarantee you that. But that's our intent. That is our intent, okay? And so, but the point is, if we exited, so in our old numbers, we were exiting the year, right? Not at our exit of 375 to 425. We were exiting at, what is it, John?
spk06: The exit in the old projections was Q4 run rate of about 440 million. an EBITDA run rate of about 130 million.
spk09: Yeah, on an annualized basis. That was the exit. So the margins were higher because you're taking in when you're more of a scale company and you're amortizing all that corporate overhead and also you're more vertical at that point as well. So there's two big, big moves there. So I would say that's part of the big thing. And then I think there is that little margin compression. So our starting point is lower in the first quarter. First quarter was weak, remember, right, because of the seasonality that I think the industry failed to talk about, and maybe we were sloppy in our modeling, and we didn't pick up. But on top of that, we had Omicron in the first quarter, which we pointed out. We had snowstorms that were pretty dramatic in Pennsylvania, Illinois, and Massachusetts, which we had to close doors for both Omicron and significant door closures, right? And then we had the vape recall in Pennsylvania. You know, who would have predicted that? And, you know, like they think they're completely wrong, but they did it, and we're fighting that. But those are three big things, you know, including – and then the season after modeling, you know, probably error on our part. So the first quarter is less, right? Then we have this lower starting point to get us to a lower finishing point. So, yeah. So, I mean, I think there's that big timing thing of getting to scale. So, we believe we'll get to industry margins. Our industry margins could come down a bit. When I say industry leaders, I mean leaders. Look at the companies that I'm pointing out, you know, especially like we're looking at GTI is the one that we're kind of trying to, you know, get to, you know, not that we're trying to emulate them, but just in terms of what we think we'll end up looking like as a balanced company, it could look a lot like that.
spk05: Our next question comes from the line of Glenn Mattson with Lattenberg-Solomon. You may proceed with your question.
spk03: Hi. Yeah, thanks for taking the question and just building on that last one. You know, if you look at the Q4 EBITDA guidance that you put out there, that's an annualized rate, right? So you're going to build to that throughout the year. You know, so I'm just comparing that to, like, the Massachusetts acquisition, the Nature's Remedy. At the time of the purchase, you talked about multiple of two and a half to three times 2022 EBITDA of 34 to 38 million. So maybe just as an example, can you talk about Massachusetts and how that is going versus what you expected when you purchased it versus what you expect for this year?
spk09: Yeah, that's a great question. That's a great question, Glenn. So, I would say, you know, we've had more issues than we expected, okay? So, and the issues, which is improve our due diligence, and it's a great thing that we go slow. Don't get, when you do these revenue acquisitions, there's no question you get surprised, right? These are cannabis entrepreneurs who started this company. They're trying to sell the company. And you do due diligence, but it is what it is. So one of the things that surprised us was your level of A-bud, right? We're not going to make this mistake because we're going to test it next time, but they were growing much less A-bud than we grow, right? And it was all just trimming, how you trim the plants, and maybe a little bit of air conditioning, you know, humidity control. We understood the humidity control, but it was more how they were trimming the plants. So we've improved that already, but that started a little bit slower. I say improving, but... Another one that we didn't expect because it's the only state, I think you see upper other operators talk about this, is employee issues in Massachusetts are much harder. So you have this labor shortage, you know about that in the country, the inflation. We don't see that in Scranton, Pennsylvania for a grower processor. And we're not seeing it to this point in Virginia, right, the growing state, people are moving there. But we do see it in Massachusetts. And other people have talked about that in the cannabis industry. And so in other words, we're understaffed by a good number of people, and we have not been able to close that gap. And because it's a tight employment market, we feel like every time we get back, we get people, we're losing people. So that's been an issue to get to our goal. There was also we had to take down a grow room. because they didn't get the cannabis entrepreneurs we bought from didn't get the proper certification. And so we took down the grow room, you know, and so we, and then we decided to be safe and we did some things, you know, to on the regulatory side, we slowed everything down because we were like, okay, you know, this little bit of a cowboyness in there that we, so we slowed everything down to make sure, you know, we're complying with all the rules and regulations once we took it over. And then we, I would say on top of that and a big thing is the wholesale, you know, we under – I think ultimately we'll get to our numbers, but it's going to take longer. On the wholesale side, you know, we're thinking like people from Pennsylvania where people have 18 stores and we're big buyers all over the country, and we can wheel and deal with people that we buy from. And there's a lot of MSOs. Because of the store caps, you've got to go out and get a lot more doors. Now, we understood that, but we didn't, you know, with the employee shortages, we didn't understand, you know, just the timing of us, you know, getting a wholesale staff in place of one that didn't have it. And so, you know, we're turning that around and getting a wholesale group in place. And that's taken a good, you know, six months longer than we anticipated.
spk05: Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn this call back over to Mr. Michael Perlman for closing remarks.
spk02: Thank you for participating in today's conference call. We look forward to speaking to you again soon. Have a good one.
spk05: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.
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