Jushi Hldgs Inc Cl B

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.

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.

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?