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.