Jushi Hldgs Inc Cl B

Good morning. Thank you for joining us today for Jushi Holdings, Inc. First Quarter 2022 Earnings Conference Call. Joining me on today's call are Jim Cassioppo, Chief Executive Officer, Chairman and Founder, and Ed Kramer, Chief Financial Officer. This morning, we issued a press release announcing our first quarter 2022 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 CDAR 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 Casciobo, Chief Executive Officer of Jushi.

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 first quarter 2022 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 first quarter of 2022 on slide five. In the first quarter of 2022, our revenue increased 49% to $62 million, compared to $42 million in the first quarter of 2021. The year-over-year increase in revenue was driven by the expansion of our retail footprint from 17 to 29 stores, the acquisition of Nature's Remedy of Massachusetts, a vertically integrated single-state operator, and increased wholesale sales at our Pennsylvania and Virginia grower processor facilities. On a sequential basis, however, we experienced a 6% decline in revenue. Like many of our peers, we were not immune to the usual seasonal slowdown in consumer activity in the first couple of months of the year after a burst of activity in December related to the holiday season. Additionally, there were three other factors. One, macro headwinds such as increased inflationary pressures likely began affecting consumer spending. Two, Regulatory delays impacted the expansion and sale of product offerings in select states, including the distillate vape recall in Q1 in Pennsylvania and the delayed rollout of hydrocarbon products in Pennsylvania due to a very slow regulatory process. And three, temporary store closures related to the lingering effects of the pandemic. and many Midwest and Northeast snowstorms have affected our sequential performance. Moving to slide six. Despite the headwinds that have impacted our top-line performance, I'm pleased to report that we have improved gross margins and reduced our operating expenses in the first quarter of 2022 as compared to the fourth quarter of 2021. an indication that we have begun to successfully execute upon our cost-saving initiatives that we announced on our previous earnings call. As reported during our last earnings call, at retail we optimized our labor model, including compensation, staffing structure, scheduling, and zoning. We also completed a vendor and product rationalization for our retail shelf space, which has resulted in better pricing and promotions for our patients and customers, along with increased margins at the store level. Moreover, we increased oversight, tracking, and reporting at all levels. For the full year, we are targeting $4 million in savings driven by labor optimization and vendor negotiations. At our grow processor facilities and as part of the Jushi production system, we're continuing to monitor all resources and materials through a set of approximately 25 KPIs. We also have value engineered packaging in certain products, which has resulted in fewer materials used and lower costs to produce. Furthermore, we have centralized procurement and launched a series of strategic sourcing tools. For the full year, we are targeting that these initiatives will result in approximately $12 million in total savings. And at corporate, the build-out of our executive and management team is largely complete, with the exception of one more senior hire to support our wholesale business, and a few more mid-level and junior accounting and IT roles as we improve our IT infrastructure expand our cost accounting capabilities, transition to GAAP during 2022, and complete the securities registration process in the United States. In summary, I'm encouraged by the progress we have made during the first quarter as we further rolled out several cost-saving measures, continued to build out our growth process or operations in Pennsylvania and Virginia to capture the vertical margin in both of these states, and increased growth through acquisition to further leverage the substantial corporate overhead required to run a best-in-class public company operating a highly complex business in the highly regulated cannabis industry. Adjusted EBITDA declined slightly by $400,000 to $1.1 million as compared to the fourth quarter of 2021, due mostly to the sequential mid-single-digit percentage decline of revenues. Ed will cover this in more detail later on in the call. I would now like to highlight our operational achievements over the next few slides. Let's begin on slide seven. In the first quarter of 2022, we established our fourth vertically integrated state-level operation in Nevada with the completion of the Apothecarium acquisition. Apothecarium Nevada represented our first dispensary in the state, attractively located just off the Las Vegas Strip, approximately 20 minutes from various popular resorts and attractions. and next to an attractive 100,000-person community that does not allow cannabis sales. Continuing the momentum in Nevada, after the quarter, we significantly expand our operations in the state with the completion of the new leaf acquisition. The acquisition adds three retail dispensaries, a 27,000-square-foot cultivation facility, and a 13,000-square-foot processing facility, to our existing Nevada footprint. New Lease Operational Dispensaries are located in Las Vegas in Clark County, a block from the Las Vegas Strip, situated directly behind the iconic Venetian luxury hotel and Wynn Resort and Casino, and Incline Village, Lake Tahoe, a premier destination mountain with which sees approximately 15 million tourists per year. Additionally, in the next week or two, we expect to open the third licensed retail dispensary owned by New Leaf that is located directly on Las Vegas Boulevard. This location expands our operating Nevada dispensary network to four, with three of those stores located adjacent to or in the high-traffic Las Vegas Strip area, which brings in over 42 million visitors from across the globe each year. With the addition of these high quality assets, we look forward to further executing our Nevada strategy, which includes expanding our growth processor operations to further serve this expanding retail footprint and potentially growing our wholesale business in one of the largest cannabis markets in the United States. Continuing on slide eight. In the first quarter, we also launched our full suite of cannabis products and brands in Massachusetts. Our flower brands, The Bank and Sashay, were the first to make their debut in the Commonwealth. And next, our vaporization cartridges and jarred concentrates line, The Lab, and our edibles line, Tastology, will launch in the third quarter, subject to regulatory approval. The initial launch of our brands and products are now available for purchase at our Tingsborough and Millbury Nature's Remedy stores, and we have plans to also distribute them across the over 200 licensed dispensaries in Massachusetts. We just launched this wholesale business in the late fourth quarter, and we are now in 62 licensed dispensaries thus far. Additionally, we expect to bring our medicinal line, NeuroPlus Medicinals, to patients and consumers in the Commonwealth in the third quarter, subject to regulatory approval. Since the rollout of the brands and products, consumer feedback has been extremely positive, and we look forward to continuing to drive market share and increase wholesale activity as our best-in-class brands and products gain traction in this rapidly maturing adult-use market. Moving to slide nine. Our expansion projects at our growth process facilities in Virginia and Pennsylvania continue to make excellent progress. At our cultivation facility in Manassas, Virginia, the phase one expansion, which will build out the existing facility from 30,000 square feet to 93,000 square feet, remains on track and is expected to be operational by the end of the second quarter. In the beginning of the second quarter, We only had one operating grow room, but commence planting three new rooms early in the quarter and expect them to begin generating revenue by early Q3 of this year. We also expect to plant two new rooms by early Q3 and expect to see revenue from these new rooms by the end of the third quarter or early fourth quarter. The total will eventually be seven as one is a bit delayed. At the end of the second quarter, we expect to complete phase one of the build-out of our Scranton, Pennsylvania facility, which will expand the facility footprint from 81,000 square feet to 123,000 square feet and begin generating revenue in the fourth quarter of this year. This expansion will more than double the number of grow rooms in this facility from four to ten by the end of the year. In addition, we began to plant new genetics for the first time since our acquisition of the facility from Goodness Growth Holdings, formerly known as Vireo, due to regulatory change in 2021 that allowed us to update our genetics from a seriously challenged genetic portfolio inherited from the previous owner. Let's move to slide 10. In the first quarter of 2022, we strengthened our balance sheet with the closing of a non-brokered private placement for approximately $14 million from very sophisticated and seasoned cannabis investors, signaling sustained confidence in Jushi's growth trajectory and strategic vision. Moving to slide 11. In the first quarter, I'm extremely proud to report that Jushi was recognized by the Globe and Mail for its 2022 Report on Business Women Lead Here initiative, an annual editorial benchmark identifying best-in-class executive gender diversity. Maintaining a diverse and inclusive workforce, across our business is core to our operating philosophy as we scale and we look to continue to lead by example as the industry matures. Let's move to slide 12. I'm thrilled to share that in just the last two weeks, we have had several very exciting developments. First, we were officially awarded the Provisional Medical Retail License from the Ohio Medical Marijuana Control Board, which establishes our fifth vertically integrated state-level operations and increases our permitted license retail footprint to 40 dispensaries nationwide. The license is designated by Claremont County, Ohio, home to over 200,000 residents, and located just 17.5 miles east of Cincinnati in the tri-state area, surrounded by various popular local landmarks, attractions, and parks. The dispensary will operate under the Beyond Hello retail brand, and construction is expected to begin this summer, with the opening to take place by Q1 of 2023, subject to regulatory approval. Becoming a vertical business in Ohio is key to earning our desired operating margin. Second, we also expanded our retail network with the opening of Beyond Hello, Grover Beach, California, marking our 32nd retail location nationwide and our third dispensary in the Golden State. For the balance of the year, we expect to open additional four stores, including three in Virginia, with one being opened in the second quarter and two more locations to be opened in the third quarter. This will bring our total Virginia store count to five. And we also expect to open an additional store in Las Vegas in the second quarter, bringing our total Nevada store count to four. At year-end 2022, we expect to operate a total of 36 retail locations nationwide. Our year-end total store count is down from our previous guidance of 38 due to the delayed openings of our stores in Culver City, California and Ohio due to slower than expected regulatory processes. And third, we also launched exciting new innovative products in Pennsylvania after receiving regulatory approval following a six-month delay. From our award-winning brand, The Lab, comes our first solventless live rosin extracts now available for purchase in the Commonwealth. The premium product line includes live rosin vape cartridges and jarred concentrates formulated using some of the most innovative proprietary extraction technologies that capture the full essence of the whole premium flower. Additionally, in April 2022, we began producing vapes from internally derived terpenes in Pennsylvania to fill the product format void that was left due to the Pennsylvania recall. Throughout the summer, the lab solventless live rosin line is expected to launch across our footprint in Massachusetts, Nevada, and Virginia, pending regulatory approvals. We are very happy to introduce this new line and remain at the forefront of product innovation as demand for solventless products increases as the industry matures and more markets transition to adult use. Before I ask Ed to review our financial results in more detail, I would like to applaud the Commonwealth of Virginia for taking a critically important step in modernizing its medical cannabis program. Through a variety of important initiatives, including the removal of the patient registration process requirements, Virginia is making cannabis products more accessible and affordable to patients across the Commonwealth. Jushi's expansion of its retail network in Virginia to six stores and the expansion of its global processor facility is well-timed to take advantage of both this improving medical law and the already passed law allowing adult use sales in 2024. With that, I'll now ask Ed to review our financial results before we discuss our 2022 outlook. Ed?

Thanks, Jim, and good morning, everyone. Before getting started, I would like to remind everyone that the results I will be going over today can be found in the soon-to-be-filed financial statements and MD&A for the quarter ended March 31, 2022. All results are stated in U.S. dollars. I'll now begin on slide 14. As Jim previously mentioned, revenue in the first quarter of 2022 increased 49% to $62 million, compared to $42 million in the first quarter of 2021, and declined 6% from $66 million in the fourth quarter of 2021. The year-over-year increase was primarily attributable to the build-out of our retail store footprint, the Nature's Remedy of Massachusetts acquisition, along with increased wholesale sales in Pennsylvania and Virginia. On a sequential quarterly basis, the decrease in revenue was driven primarily by seasonality, macro headwinds, including a likely reduction in discretionary spending due to inflationary pressures, regulatory delays impacting the expansion and sale of product offerings in select states, including the recall of medicinal products and the delayed rollout of hydrocarbon-approved products in Pennsylvania, and a temporary store closure related to spikes in COVID cases and snowstorms in a few of our markets. Moving to slide 15. Our adjusted gross profit was $26 million in the first quarter of 2022, a 33% increase as compared to the first quarter of 2021. On an adjusted basis, first quarter 2022 gross margin of 41% increased approximately 130 basis points as compared to 40% in the fourth quarter of 2021. The increase in gross margin was primarily driven by margin improvements in Pennsylvania, partially offset by an increase in promotional activity at retail in Illinois and Massachusetts. and pricing compression in wholesale as the company continues to build out its brands across state markets. Operating expenses in the first quarter of 2022 were $37 million. An $8 million improvement is compared to $45 million in the fourth quarter of 2021. Excluding accounting period and adjustments and the impairment of our European joint venture and Nevada grow processor business in the fourth quarter of 2021, along with the increase in share-based compensation on a sequential basis, operating expenses improved by approximately $300,000 driven by the initial impact of the cost saving measures we implemented in the first quarter of 2022 that Jim referred to just a few minutes ago. For the first quarter of 2022, adjusted EBITDA was 1.1 million as compared to 1.5 million in the fourth quarter of 2021. Adjusted EBITDA was negatively impacted by lower sales volume combined with continued infrastructure and headcount investments that were completed in 2021 that are expected to have a transitional impact on our 2022 results, partially offset by improved gross margins. As we move into the back half of the year, we expect our top line results to drive improved operating leverage in the business. First quarter net loss was 14.3 million or eight cents per diluted share. Now moving to the balance sheet on slide 16. We ended the first quarter with 76 million of cash and cash equivalents on the balance sheet, including the $14 million private placement that occurred during the first quarter of 2022. On a debt-free basis, our working capital was $38 million. As of March 31, 2022, we had approximately $147 million principal amount of total debt, excluding lease and property, plant and equipment financing obligations. Subsequent to the first quarter, we drew down an additional $25 million for the two Nevada acquisitions, resulting in current availability under the acquisition facility of $35 million with the ability to further increase the capacity of the facility by an incremental amount of up to $25 million. We are also in discussions with a small group of lenders in regard to refinancing our existing senior secured notes. We expect to refinance the total outstanding balance of approximately $75 million in the third quarter of 2022, well in advance of the maturity date in mid-January of 2023. Lastly, the company paid $29 million in cash capital expenditures, of which $10 million was paid for CapEx accrued at year-end 2021. These reflect investments related to the expansion and optimization of our grower processor facilities in Virginia, Pennsylvania, and Massachusetts, as well as the build-out of our retail store footprint. Given the uncertainty around timing of regulatory approvals and construction delays for the full year 2022, We still expect to incur approximately 40 to 60 million of new capital expenditures. As of May 25, 2022, our issued and outstanding shares were approximately 195 million, and our fully diluted share outstanding were approximately 281 million. And with that, I will now turn the call back over to Jim to discuss our 2022 outlook.

Thank you, Ed. Let's take a look at our outlook on slide 18. We are modestly revising our fourth quarter 2022 annualized revenue and adjusted EBITDA guidance to be between $340 million to $380 million and $60 million to $80 million on an IFRS basis, respectively, from $375 million to $425 million and $70 million to $90 million. Given the weakening macro environment, as well as the aforementioned regulatory delays and supply chain issues, we want to be more conservative about our projected revenue ramp through the remainder of the year. While we previously expected some additional M&A activity contributing to the fourth quarter growth, we now expect growth for the remainder of the year to be 100% organic without any revenues from new acquisitions, for the remainder of the year as we continue planned store openings and bring online more grow rooms from our expanded Pennsylvania and Virginia facilities, which are key to increasing our margins. Projected revenue growth from these openings, especially in Virginia, as well as incremental wholesale production, will likely drive continuing sequential top-line growth. but that may be tempered by competition for share of the consumer wallets, stress by inflation, as well as regulatory delays that slow introduction of new products and new stores to market. Other potential risks to the guidance include competition in Pennsylvania as companies increase their footprint to prepare for adult use, as well as continued resurgence of the illicit market nationwide as regulators turned a blind eye to this very large market and very often pursue decriminalization prior to allowing adult use, which only exacerbates the issue. I would note, however, that when alcohol prohibition ended, there was a very large illicit market that disappeared over time. Although we have slowed down the pace of acquisition activity due primarily to the dislocation of the equity markets, specifically in the cannabis equity markets, we believe the medium and longer-term acquisition opportunities remain bright for the Jushi platform. Many sellers appear to be looking for a home for their quality businesses and view Jushi as a very strong alternative in an environment of decreasing alternatives due to somewhat rapid industry consolidation, and the limitations on license ownership in many of the most attractive states. In the short term, our substantial capital expenditure investments in both Pennsylvania and Virginia should prove to be a very wise allocation of capital resources and management focus. The organic growth rate of Jushi is expected to continue to outpace most companies we can acquire, making accretive deals difficult to achieve. As usual, patients should pay nice dividends for our shareholders. I am incredibly encouraged by our team's dedication to operational execution and remain confident in our ability to achieve accelerated growth and profitability throughout the remainder of the year. As demonstrated by our increased cost savings in just one quarter, we are putting in significant work optimizing our resources and making important investments where needed to execute on our strategic initiatives and build out our business for long-term sustained growth. We believe we are creating one of the most robust and exciting platforms for growth in the U.S. cannabis industry, and I am now more than ever exceptionally confident in the future of our business. As always, I would like to thank our Jushi family. We would not be where we are today without their continued hard work and dedication. With that, I would like to pass it back to the operator to open it up for questions. Operator?

Thank you. Ladies and gentlemen, to ask the question, you will need to press star then one on your telephone. To withdraw your question, press the pound key. Again, that's star one to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Russell Stanley with Beacon Securities. The line is open.

Good morning, and thanks for taking my question. First on Virginia, obviously great to see that regulatory change in eliminating the patient card requirement. Just wondering, once that's out of the way, that seems to have been the biggest impediment to growth in that medical market. So once that's out of the way, I guess, What are some of the other hurdles that you see to growth, if any? And if not, I guess, you know, do you otherwise see this being kind of the last step to this market really becoming what it should be given the size of the state?

Hey, Russell. Thanks for the question. Yeah, so the other hurdles to growth, which I think are also solving very timely, I alluded to in the prepared comments, are, you know, supply of the product. And, you know, our expansion, you know, I guess maybe lucky or whatever. You know, it's actually a few months late, I would point out. We thought we'd have this done, but, you know, with supply chain issues and, you know, all the construction issues out there with, you know, too many people doing, you know, the same thing, not in cannabis, but generally building up factories. We're a little late, but it's it turns out to be very well-timed as we're bringing on these grow rooms, as I indicated in my prepared remark. So the supply would have been a limitation, but we feel, you know, very good. We've already planted the rooms. And so, and we feel really good about our management team in Virginia and the employees in Virginia. They've really been, you know, very good performers for Jushi. So the grow processor should perform as expected and, And it's taken a lot of senior management's time. So I would say execution there, which I'm confident of, would be one hurdle, just the supply. And the second is you know, getting those stores opened. And, you know, I outlined that. So we have a store opening in the late second quarter and two in the third quarter. So any delays may slow down because they're pretty far apart. There's only five stores that we have planned this year. We have one more that we'll add next year. But I think just getting that all together will be an execution. I'm very confident that we'll get it in the timeframe required. And then the third hurdle would just be us getting the right pricing strategy. Given the limitations in the market of the previous medical program, just to point out, to put this in perspective, we've had three straight years of regulatory change in Virginia. including, by the way, adult use coming up, and I'll comment on that in a second, but three years in a row. So the first year, we added five, the regulators added five stores per license to the existing one, was one of the key changes, and reduced what we thought was a THC, could be alluded as a THC cap, and then the second year, they did the adult use, and they allowed a flower with two of the bigs, or many more, and this year, the patient card's reducing the CBD requirements, which, you know, for some users, you know, is a turnoff. And now hopefully we're going to be allowed also to sort of do more effective marketing strategies because there were severe limitations on that as well. So these improvements in the program, and by the way, the other thing we could do now is hydrocarbon, which gives you the full suite of products. Without hydrocarbon, you don't have the full suite of products. That adds a lot of So all that's happening. Hydrocarbon will come up a little later for us because just the way the capital program is done here at Jushi. But all of that regulatory change. you know, has turned this market into a really, really good market. But before, it was somewhat constrained by the number of patients and the cards and just – so we all – all of us had a lot of competing capital projects. Dushi went the way of opening up like 30 stores in two years, and we went slow on building out this facility, which is – you know, the warehouse was 93,000 square feet, but a lot of it was unbuilt. So what that means is we have very high prices in Virginia. You know, the average eighth, you know, in Virginia was the lower tier was 55, the higher tier 70, and we believe we need to bring that down as supply increases, and we will, and we think that will stimulate demand. That's a good thing. Those are still very, very high prices when we bring it down. We think our strategy would be somewhere between, you know, 40 and 60 for those same eighths. depending upon the quality level. So those are the things we're doing to execute in Virginia, stimulate demand, and get people into the stores. And we're hopeful, and I think that's a big aspect of the growth in Q3 and Q4 for Jushi. But I also want to point out, Russell, since you gave me the opportunity, I think people are forgetting that that there's an adult use program that's already approved. And we are confident that starting on January 1st of 2024, we will be able to sell adult use cannabis in the Commonwealth. We look forward to continuing to work with Virginia legislators and regulators to put a commercial adult use cannabis program in place prior to that date. I think people are forgetting that. The law has already passed.

Got it. That's an excellent caller and very much appreciated. Maybe just one more question and I'll get back in the queue on Pennsylvania. Just wondering where your level of confidence or optimism is with respect to legislative progress on adult use relative to where your thoughts were be it three or six months ago. Are you more confident, less confident? What are your thoughts there? And I guess related to that, are you Therefore, I guess closer to making a final decision on the next leg of expansion of Scranton that I think is dependent on your view of progress there. Thanks.

Yes. So in terms of Pennsylvania, I think that there's been a lot of progress made, and I think in the next few weeks, The press will start – it's a public process, right? So you're going to start reading about it. And you're going to look at the bill. You're going to see all that stuff. That's what I think is going to happen. We think the industry has been educating and doing a very good job of educating people. the legislators and the government officials about how this works. There's good examples out there of programs to bring to their attention, and we believe there's some good momentum in Pennsylvania, and we think you're going to start to read about that, and the process will take place fully open. It's a public process. starting pretty soon and and you know the chances of it going through you know these things are always close calls i would know you know that there's articles in philadelphia every day about all the cannabis consumption um uh getting drawn into this new jersey facility that i think um The Cure Relief pointed out is going to run right at $100 million. A lot of that's coming out of Pennsylvania if you look where that dispensary is. So these are good things. We're not seeing a lot of that in our system, to be honest. Maybe we'll see a little bit because those people don't have medical cards. The prices are probably better in Pennsylvania. Those are people who don't want to get cards. There's a lot of reasons if you're a citizen of the United States, you don't want to get a card. Guns is one of them, and insurance and jobs and all these types of things. So they're already losing tax revenues since New Jersey did it. I think there's going to be some good momentum, but we'll see. I think there's a higher probability we see something in Pennsylvania than we see the Banking Act, although that's gotten a little more interesting as of late. But I think there's a higher probability of Pennsylvania than a federal sort of Banking Act.

Thank you. Our next question comes from the line of Bobby Burleson with Canaccord. Your line is open.

Yeah, good morning. So just curious about the new guidance and maybe if you don't mind reviewing what your expectations were for seasonality with the previous guidance and whether or not there's any change in seasonal expectations in the new guidance. Thanks.

Yeah, thanks, Bobby. So that's a good question. You know, the new guidance, we were pretty specific on, you know, some of the big pieces. So you had two stores that in a previous guidance, we thought we'd have 38 stores open in the fourth quarter. Now it's 36. That's just pure regulatory delays. I think we were excavating – in Culver City, we have to excavate for some sort of like ancient artifacts or something in a site that was owned by Exxon and was a Superfund site. So somehow – I mean it's crazy. So like who could expect that, right? And then – And then, you know, the other one in Ohio, that one was just taking a little bit longer time. We knew we had the license, but they just awarded it. That could have been weeks or months. It turned out to be months. So those are the types of things. You know, also, you know, we did have, you know, a series of delays with our construction related to this boom that we've had, the investment boom we've had in the United States, and also, you know, the supply chain issues affecting things like, you know, our humidification and our air handling and all these types of things. So there's very specific equipment that was, you know, that was short. And then we had the fire department of Virginia decided to do some incredibly, you know, there was an anti-cannabis guy, in my view, running the process there. And we took a few months there. So that delayed our wholesale business. So we've been very clear about that. You know, as we didn't have, we're not going to have that product a few months later. having that product because of these kinds of delays. And then the third thing is acquisitions. I think I believed I would have executed on a Massachusetts deal by now. It fits right in. We have a nice grower processor. It's one of the things we want to do. That's just an example of things we thought we would do, maybe a Nevada deal, revenue deals, not license deals. So we thought we'd have some revenue deals out there, maybe a new state. But, you know, given the dislocation in the capital markets, it's a very, very tough time to get deals done. I mean, seller expectations are coming down dramatically, but they have further to go. You know, they started, you know, very high because they're always off anyway by a factor of 2X. what they're worth and then you know it takes them it takes them you know if they can do a deal with us you know it takes them six months to you know explain and usually their projections are higher and then they miss them and then they then we get to a price well in this case you've had that usual process going on and on top of that you have you know a market where our valuations got dramatically the industry's valuations got dramatically you could see why we want to you know sort of sit and wait you know and And in terms of seasonality, which is a good question, I think I'm a little confused by other CEOs not talking about it as much as I do. I just think that January and February are clearly the slowest months, especially if you have a Northeastern and Midwestern-based business like we do. Maybe if you're in Florida and Arizona, they're good. Maybe that's why they don't talk about it is because they do better in Florida and Arizona than as you get these tourists coming down. But for Jushi, given our locations in the Northeast, we get a lot of the winter weather, people slow down. But also throughout the whole country, what you see, which again could be offset by all the snowbirds coming in Florida and Arizona, if you're like a true leaf and you're in those states, and they did well in the quarter, right? So they have this concert trend given their sort of big, big presence. But if we're a northeastern, midwestern-focused thing, those states take COVID more seriously. We have this Omicron outbreak. And we had to close doors this year, and also we had to, we didn't plan for that. We also had a very unusual amount of snow. I think that's pretty well documented out there. And remember, Illinois, Pennsylvania, Massachusetts, you know, they get a lot of snow. And so there was an excess of snow, so we had to close doors more than we would have expected. So we had more than just seasonal stuff this year. um and then uh but absolutely did we get seasonality wrong yes because we were growing so fast it didn't matter um and and um uh and so you know this this year mattered but if you look at the change between sort of the um fourth quarter and the first quarter you know there's a lot of um uh with the vape recall we took vapes off the shelf we had a very robust vape business um both wholesale and retail, of selling the lab vapes. Our hydrocarbon facility, which is fully built, the Pennsylvania regulators who resigned in February, a bit related to the vape recall, and maybe the governor's displeasure, I don't know, I'm not in the government, But I think that, you know, we had to vape. We weren't able to do hydrocarbon products because they slowed that down. You know, we're moving a little bit slow on the solvent list of figuring that out. Not, I mean, you know, expected. That was not unexpected. And then, you know, we lost all that revenue related to vape. So if you just add that back, it's not bad, you know, where we ended up. So do I think seasonal? Yeah, I think January, February, the obvious weak ones. I think December is the obvious strong ones. you know, April is a little bit stronger probably than May because of, you know, 420. But those are the kinds of things. But, you know, the summer is a good period and the fall is probably not as good as the summer. And, you know, do we calculate all that in our budgeting process this year? You know, we'll probably do a better job next year.

Okay, great. And then I guess just understanding the illicit market and how that's impacting things, is that conspiring in any way with consumer price sensitivity with inflation? Is that exacerbating the challenges that the illicit market is placing on the regulated market, or are they independent in your mind?

Likely. Likely. Well, thankfully, the CEO of Jushi doesn't have a deep view into the illicit market, thankfully for our shareholders. So I can only suspect what's going on, right? And so what it feels like to me, and, you know, I did investing for 30 years, running, you know, multibillion-dollar hedge funds. And so I was paid at that time to suspect and sort of make investments based upon your intuition and analysis. So with that little footnote, I believe that it's pretty obvious that the illicit market has made inroads. I think there's two major reasons for that. One is the decriminalization. If you look in Virginia, the politicians aren't very happy, the fact that some of the politicians, I think many of the politicians have figured out Decriminalization, you know, in July of 2021, right, is when it happened. And adult use in 2024, that stimulates the black market, right? Because all of a sudden they're getting a slap on the wrist that whether they pay a few hundred dollars, a thousand dollars, they have very good margins. So, you know, we've already seen, by the way, in Virginia, they've increased enforcement just recently. It's going on. I don't want to go into it in too much detail, but that's happening. Some of these states aren't very happy that this is going on. If you look in New Jersey, very clear uptick after decriminalization and had that long delay. And then if you look at the prices in California, you know, if wholesale prices in California are down like 50%, right? That just means, you know, there's just – it appears to me that what goes on is just these distributors that take on the regulatory risk in California. So even maybe some people selling Lilly, they don't know where it goes, you know, and all of a sudden it goes across the country. And the other thing is the borders were shut during COVID and the borders opened up. So it's pretty obvious. But my point is that's the opportunity. Does that cause the industry to have a little – on top of the inflation, on top of gasoline, if you're paying $100 at the pump and you used to pay – You know, $60 at the pump, you know, that money's got to come from someplace. You know, if your food's up, there's a lot of consumers that have to cut back someplace. I don't think cannabis is one they want to cut back on, nor do I think beer or alcohol. I think those are in the top five. But you need to, you know, cut back. We don't take credit cards for obvious reasons. And so you can't put it on your credit card. So I think that's an issue, right? And what's going on in California, nobody talks about this because nobody's really generating much profitability out of California, but they're trying to reduce the taxes on cultivation to make that legal market better, which will push the legal industry. illegal into the legal. And everybody knows there's a huge illegal market out there which goes on. So the answer to the question is absolutely. But I would note it all goes away once the federal government does what it needs to do. Once we go to adult use, it'll start going away very rapidly in Pennsylvania. Virginia. And then they'll be at some sort of level that you see more like in Massachusetts or Nevada. By the way, in those two markets, you absolutely, there's more of a history of adult, more of a history in my mind in those two markets of the illicit market. It just feels that way. Do I know that for a fact? No. But if you're in the industry, you can feel it and you can see some of the effects of people going into the illicit market, particularly in those two markets. So that's my answer.

Great. Thanks, Jim.

Thank you. Our next question comes from Ty Collin with A Capital. Your line is open.

Hi. Thanks for taking my question. I guess the first one, there's been some news in Illinois recently about those incremental retail licenses maybe getting released a little sooner than expected. I'm curious to hear your thoughts on that possibility and whether that changes how you're prioritizing your M&A opportunities at all.

Yes, that's a good question. So the answer is we were excited to read about that. We don't know probably much more than you, but it sounds good to us so far. I would just look into that. Yes, I did sign some LOIs to buy some properties this week. So I am a little bit more bullish. And so, yeah, I mean, listen, I think one of the things with Jushi that I've said on other conference calls, I'm not saying on this conference call, because I pull back on the M&A activity. But it's not hard to imagine Jushi with 10 dispensaries and being vertically integrated. And the number of people who actually can buy those dispensaries with a good stock and some cash. Remember, we have this acquisition facility. The number of people, of companies that can do that are very, very small. And you can do that math. You can just actually look at who's maxed out and who's not. And then the grow processor capability, you know, I have 80 million of sales. So, I mean, the value of a grow processor to us. is quite high going from 80, putting on more dispensaries, and then going 30% to 50% of our own product. So just think about Jushi, the amount of dilution. We have a pretty good track record with deals last time I checked. So look at the dilution that we would take, and we're very creative in the way we would structure a deal in a down market if there were you know, potential sellers. But if you look at the dilution we would take, I think people would be wise to give us the benefit of the doubt as a management team, given our track record. And you look at Jushi with 10 stores being vertically integrated with Pennsylvania, Virginia, Massachusetts, Nevada, that's pretty powerful. Ohio, by the way, I'd point out, you know, You know, the laws are – we can go much slower there. You know, we can go much slower in Ohio because the laws are kind of, you know, different, let's say. Each year you can expand your production facility. And so, you know, what we have now can support only two dispensaries. We already won one. We'll probably buy one. you know, and then, you know, not too distant future, you know, but it won't close until next year and get open until probably middle end of next year. But then, you know, we can't expand again and bring that online for another year to service more. So we'll go slower, which will have the benefits, you know, price-wise for us. So each one of these states is a little bit different how you approach it from an M&A perspective. And given the capital markets, you know, you have to really pick your shots.

Okay, thanks for the color there. And just for my follow-up, could you update us on the new leaf acquisition now that it's closed? Any surprises, positive or negative, once you got to look under the hood there? Is that business still on track to do the $13 or $14 million EBITDA this year that would have been applied by the four-and-a-half times multiple in the original?

Yeah, so I'm sorry, you faded out. That was the new leaf acquisition, right?

That's right.

Yeah, I would say it's too early to tell. We just went in there. We just closed a deal in April. I would say what I can say is I asked my operating team. They like to grow. When you buy these facilities through acquisition, You know, one of the bigger risks is you find things in the grows that aren't what you thought they were. You know, so far, so good there. You know, we're opening that store, you know, so when you open a store, you're not sure what it's going to do and how it's going to do. And there's just, you know, we have models that we do, and we think we are so smart and we know this, but we don't always get that right. So there's a lot of factors there. But I will say on the EBITDA side, you know, I was, you know, we have this, you know, a procurement team. And one of the things we put in place is our vendors, you know, have to match our prices. you know, in our acquisitions, you know, our next order, right? So let's say it's, you know, our vape supplier, our packaging supplier, whoever it is. So, you know, given our purchasing power, given, you know, listen, we're doing, you know, very significant revenues and we buy a lot of stuff. And we have a guy from Anheuser-Busch, ABN, very famous for its cost controls, running this team. And so we'll get a cost savings immediately on that. We think those are a million annualized. That's something we hadn't built into our models. So there will be some pushes and takes, but it's too early to tell.

Thanks for the question, Jim.

Thank you. As a reminder, ladies and gentlemen, that's star one to ask the question. Our next question comes from the line of Andrew Semple with Exxon Capital. Your line is open.

Andrew Semple Hi there. Good morning. A couple questions here on the gross margin. First one is I just want to ask on the Nevada footprint, how that might compare to your consolidated gross margin profile in that state. and whether there might be some latent gross margin enhancement opportunities with vertical integration in the coming months.

Okay. So, yeah, so in terms of gross margin, you know, okay, so first of all, for the company-wide, we talked about, in the prepared remarks, 12 million of savings at the grower processors overview, which is a target. You know, if we got 10, I'd be overjoyed, right? We could get higher than 12. But this is when you hire a COO out of, you know, Anheuser-Busch, this is how you run a business. And I keep telling people, Like, they're worried about pricing. Pricing going down is a good thing because it stimulates demand. It gets rid of the black market. But you have to obviously get your costs down. So, you know, we will be focused on doing this on the gross margin and below gross margin, you know, continually, right? And so, yeah, so, you know, in Nevada, I'm not going to go through what our gross margins are there, but I will point out that it's the most vertical operation that we have. The sell-through of the product through the stores in Nevada, it's the way the market is structured. It's not just us, right? It's just how it is. So the margins on an EBITDA, even though the pricing is a little lower in Nevada than, let's say, Massachusetts or quite a bit lower than Pennsylvania, and Virginia prices are just too high to be quite frank, even though that the margins are actually quite good because of the vertical nature of that market. So in terms of gross margin, I told you $12 million for the company. you know that one million i just talked about that my you know ceo mentioned to me you know that's gross margin right so so and then on an ebitda basis there's some things of retail that we do um they do a great job on retail great employees there um but we have some things that we know tricks that we do and so we're looking at you know some opportunities there as well great and then maybe if i can turn the conversation to virginia uh you spoke to you know maybe

you know, keeping pace with sales and demand growth in that market might be a challenge for the next couple months until you get that expanded cultivation capacity online. Is it fair to say you're relying on a fair amount of third-party wholesale products in that market currently? And is there, you know, kind of a low-hanging fruit to kind of, you know, replace some of that or or meet incremental demand growth with some of your own in-house grown products and expand gross margins through that method.

No, no, no, no. Yeah, no, I think, no, first of all, I think you misunderstood. Our production is coming on right in time for this expanded market. So I don't think we're going to have delays. And if we do, that's a wonderful thing because we have lots of production coming on. And if they buy it all at a rapid pace and we run out, fantastic. You know, I think GTI is in a large expansion. I'm sure, you know, if they have some extra, they'll sell to us and And, and, and we typically have bought from the third competitor there as well. So, but no, we're selling a lot of our own product in Virginia. The problem is a lot of small numbers. It's just a small market because, you know, there's 50,000 patients and the patient acts, you know, patients can't get card. There's a 15,000. 12, 15, whatever it is, backlog of patient cards. So you would think those, I don't think, I'm not even sure they're processing those at the Board of Pharmacy. So they'll come into the market, you would think, in July, some of those folks, right? And then as prices come down, we'll stimulate demand. So it's not easy to predict what's going to happen, but we have plenty of production coming online. I have confidence in the execution of our team in getting that actually to market. There could be some regulatory delays on new products like hydrocarbon. The Board of Pharmacy has been somewhat deliberate in their process to a fault in getting products to market. So that's one risk that's hard for us to do. But we have a lot of existing products. Every new strain, I think, it's a new product. So there are some hurdles that we have to do as regulators to get things to market. But, you know, the product, you know, so I would say the delays could be more regulatory in nature, you know, if we have to get like individual products approved, which we do. But when they're not doing cards and they're not backlogged at 15,000 cards, we think they should free up a lot of time. One of the issues in this industry is they grow so fast that the regulators are always understaffed. And so they're diligent in their job. They want to serve the market, but they're just overloaded because nobody expects these markets to grow the way they do. at the government level. So I guess what I'm saying is if we run out of product due to production not having enough, that's a wonderful problem to have. Could there be some regulatory delays in getting certain products to market, which causes it to be more backloaded to the year? Yeah, that could easily happen. So that's how I'd say it. And no, we're selling a lot of our own product Our product happens in Virginia to be the highest quality product as far as I can tell. You know, we grew our last grow we took down. You know, these are rough figures, but, you know, it was almost 85 grams per square foot with 25 to 28% potency, you know, on our older genetics there. So, you know, that's just fabulous. So those are great. And we're not really distributing that. Those are wholesale. We're selling those to our customers. And so, no, we have very good product, and we view that to be a highly vertical state with those kinds of margins.

Great. Appreciate the additional color there and the clarification. Thanks so much. Yeah.

Thank you. Our next question comes from the line of Glenn Mattson with Landenburg-Fallman. Your line is open.

Hi. Yeah, you might have touched on this a little bit, but I'll ask it maybe slightly different. Just... You know, there's a little bit of softness early on in the year due to seasonality, as you touched on that already. But then, you know, you kind of made comments briefly that perhaps April was a little bit better than May, given, you know, 420 and stuff like that. So I guess I'm just trying to get a general sense of the tone and direction of the, you know, kind of overall picture and demand side that you see it as we kind of go through the year and what part of the new revised guidance is basically – how much of an assumption of an improvement in the overall market backdrop is built into that guidance, and how much is rolling in the new stores like the Nevada acquisition and maybe improvements in Massachusetts and things like that?

Yeah, good question. So I think that the second quarter, clearly, we're going to get back onto trends. in terms of growth. And I thought, I don't want to get into it because we're not disclosing guidance. Uh, but you know, April is a good month. Um, and, and, uh, you know, it's only May 20, what's fifth or something like that. So, so we have, um, we don't have a full picture in May, but you know, I mean, historically we do know for 20, I mean, four 20 is like two and a half days of sales, you know? So, you know, and there's a lot of promoting going on. And the other trick in this business is you drive sales through, you know, promotions and, and, and, um, And so, you know, there's a lot of promoting going on in December around Christmas. People love sales. Everybody's doing sales, right? Simulating demand in December. So, yeah, so we as an industry create these strong months. And so we know April, you know, from history, is one of the strongest months of the year, right? Yeah. So, yeah, I mean, I think other people have talked about how, you know, second quarter is, you know, so far so good. In terms of, you know, moving forward, you know, in terms of – I think we were pretty clear, you know, I know one of our competitors had a call and some people may have missed that. We were pretty clear in our prepared remarks, you know, that, you know – We're opening a few more stores, two less than we thought, right? So that was part of the guidance coming down. We adjusted our guidance for what we think are some of these consumer head ones, but we don't know. Even if we were economists, last time I checked, economists always get it all wrong anyway. But I happen to be pretty good at this because I read a lot of – I have a history in economics and finance and all this kind of stuff. But I know I'm always wrong on this stuff. But we've adjusted it to what we kind of think it is now. I think the risk to that for the economy is to the upside or downside. I think it's what you have to make your own opinion about that. And so we can only guess what we see, but there was an adjustment for that. There's also an adjustment in our projections for the delay in the grower processors getting online. I mean, this has been something that the fire department issue in Virginia, we lost two, three months. Easy two months, likely three months. You just can't model for that, that you have sort of an anti-cannabis fire inspector. And so there's some of the adjustments. Again, the acquisitions that we're not going to do, like in, let's say, Massachusetts, revenue-producing retail, we're not doing that. I mean, if you look at the capital markets, if we were doing that, you should worry about us. They're going to get cheaper. Their expectations are too high. There's more dispensaries opening in Massachusetts. There's no reason why we should take those kinds of risks. At the moment, right? And so those are the reasons. What's driving our growth in the second half of the year is primarily, you know, Virginia in our models is Virginia and the growth of the wholesale business. That's our primary growth factors. And, of course, opening the stores, you know, is related to that. Virginia, right? Because a lot of it's in Virginia. And we have that one Nevada store opening. So that's kind of how it looks for us.

That's great color, Jim. Thanks. That's it for me.

Good.

Thank you. I am showing no further questions in the queue. Now I'd like to turn the call back over to Michael Perlman for closing remarks.

Thank you for participating in today's call. If you'd like to ask a follow-up question, feel free to reach out to me at investors at Jushiko.com. Have a great day, and we'll speak to you soon.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may disconnect.