Jushi Hldgs Inc Cl B

conference operator today. At this time, I would like to welcome everyone to Jushi's Holding Incorporated second quarter 2022 earnings conference call. Today's call is being recorded. For the best sound quality, all participants have been placed in a listen-only mode. Later, we will conduct a question and answer session. To ask a question, please press 01 using your touchtone phone. I will now turn the call over to Michael Perlman, Executive Vice President of Investor Relations. Thank you, sir. Please go ahead.

Good morning. Thank you for joining us today for Jushi Holdings Inc. Second Quarter 2022 Earnings Conference Call. Joining me on today's call are Jim Casciobo, Chief Executive Officer, Chairman and Founder, and John Barrick, President, Interim Chief Financial Officer, and Founder of Jushi. This morning we issued a press release announcing our second 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 and EDGAR. On August 12th, Jushi became a U.S. reporting issuer under the United States Securities Laws and has converted its accounting standards from IFRS to U.S. GAAP, beginning with our second quarter 2022 results. Thus, All financial information has been prepared based on U.S. GAAP. Additionally, non-GAAP financial measures referenced on this call are reconciled to the most directly comparable U.S. GAAP measure in the company's earnings release and will be available in the company's MD&A for the quarter ended June 30, 2022, which will be 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 S-1 registration statement and other periodic filings and registration statements. These documents may be accessed via EDGAR and CDAR. These forward-looking statements speak to 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, Chief Executive Officer, Chairman, and Founder 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 second quarter 2022 performance and review our recent operational achievements. I will then turn the call over to John to review our financials in more detail. Before I provide an update on our outlook for the remainder of 2022, a question and answer period will then follow. In a challenging macroeconomic environment, I'm pleased to report solid second quarter revenue growth and more initiatives to improve profitability. The company reported solid sequential and year-over-year top-line revenue growth for the second quarter. On a sequential basis, revenue increased 18% driven primarily by the acquisitions in Nevada in the first half of 2022, increased retail and wholesale activity in Massachusetts, and growth in retail stores in Illinois and Virginia. Year-over-year revenue grew 52% to $73 million, compared to $48 million in the second quarter of 2021. Driven by our acquisitions in Nevada and Massachusetts, and new Beyond Hello store openings in Pennsylvania and Virginia. On a GAAP basis, adjusted EBITDA for the second quarter was approximately $0.5 million as compared to a loss of $0.9 million in the first quarter of 2022. Let's move to slide six. It is important to note that increasing the sell-through rate of our Jushi branded products is one of our more important initiatives and a significant profitability driver for the company in the coming quarters. As of the second quarter, the sell-through rate of our own branded products improved by approximately 770 basis points to 21% of total retail revenue, as compared to approximately 14% in the first quarter of 2022, driven primarily by the acquisition of NuLeaf. Excluding the new leaf acquisition, our own brand penetration increased by approximately 270 basis points to 16%. This is an encouraging signal as we look to increase the penetration of our own branded products in the second half of the year, especially as we continue to diversify our offerings and add new strains. As a further data point, we've seen accelerating traction recently with our own branded sales of our flour and vape products in Pennsylvania, reaching levels as high as 40% plus of weekly units sold. Let's move to slide seven. Throughout the second quarter, we continue to aggressively execute on the cost savings measures we implemented at the beginning of the year, and I'm pleased to report that these efforts have led to another quarter of reduced operating expenses as a percentage of total overall revenue. I'd now like to provide a brief update on these initiatives. At retail, we continue to optimize our labor model to ensure we are allocating the appropriate amount of resources and staff across our footprint in alignment with market activity and demand. For instance, in Virginia, where the patient registration requirement was recently lifted, we are improving our staffing structure and zoning of pharmacists to ensure we are providing the best in store experience for the influx of new patients entering the medical program. Additionally, in late Q1, we brought on a labor analyst to support our retail team with the optimization of the labor model in our stores. Together, they standardized store headcount and staff schedules to ensure optimized labor while maintaining best-in-class customer care and continued operational excellence. Part of this newly established standard includes a greater emphasis on utilization of part-time store team members, which gives us the ability to be highly flexible and nimble in managing any fluctuation in store revenue. we are starting to see the positive impact this optimization is having and expect to continue to realize that impact in Q3 and beyond. Additionally, our vendor and product rationalization that we initiated in the first quarter gives us the ability to be more strategic with our pricing and frequency of promotions across our footprint, which has helped drive growth profit dollars and gives us a better understanding of the current purchasing habits and trends unique to each market. Similar to what many of our peers have reported, we have seen average spend per transaction decline in the second quarter with smaller basket sizes showing a focus on value products. However, it has been more than offset by an increase in the number of visits and the number of new customers shopping at our stores. While we believe the cannabis business is recession resistant, no business is completely recession proof. We will continue to improve our vendor purchasing processes to further increase retail gross margins across our footprint. Next, at our grower processor facilities, as our new grow rooms come online in the second half of this year, particularly in Virginia and Pennsylvania, we expect to see a meaningful improvement in the genetic diversity, quality, and yield of our harvest as we implement new processes and introduce new automation technologies. This should increase cost efficiencies over time and allow us to realize higher margins for our branded product as quality and diversity of product improves. We expect the facility's KPI to be on an improving trend for the next 12 months as these facilities scale up and move along the learning curve to our desired peak operating goals. In both Pennsylvania and Virginia, we will be feeding our own substantial retail sales and will not be overly reliant on the wholesale market. And at the corporate level, with the exception of recruiting our replacement chief financial officer, we have completed the build-out of our executive and senior management team with the addition of Shauna Patrick, who will oversee the growth of our wholesale sales as our new executive vice president of wholesale operations. We are also... in the final stages of hiring for our accounting and IT departments to support our transition to being a U.S. reporting issuer. I will now like to highlight our second quarter operational achievements over the next few slides. Let's begin with slide eight with an update on our state-level operations. In Nevada, we completed our acquisition of NuLeaf which significantly expanded our vertically integrated operations in the state. This was our third acquisition in Nevada and substantially increased our presence in the market with the addition of a 27,000 square foot cultivation facility, a 13,000 square foot processing facility, two operating retail dispensaries, and one licensed dispensary to be opened. Following the close of the acquisition, we opened the third New Leaf retail location on the Las Vegas Strip, bringing our total store count to four in the state. Let's move to slide nine and ten. In Pennsylvania, we expanded our Scranton facility from 81,000 square feet to approximately 123,000 square feet. We remain on track to more than double the total number of operational grow rooms from four to ten and increased canopy and annual biomass production to 36,000 square feet and 22,000 pounds, respectively, by the end of this year. In our new processing area of the facility, we have introduced various automation technologies, which we expect will drive efficiencies and improve quality in the coming quarters. Our new hydrocarbon and solventless extraction and processing capabilities at the facility allow us to provide a full breadth of vape and concentrate product formats to the Pennsylvania market, which as of August are fully introduced to the market and are getting great patient reviews. We expect to further diversify our offering in the second half of the year with new strains of flowers, varieties, which have just hit the market. Moving to slide 11. In Virginia, we have expanded our Manassas grower processor facility from 30,000 square feet to approximately 93,000 square feet. We went from only one flower room planted early in the second quarter to five by the end of June and are expecting these new rooms to generate revenue at the end of this quarter, which is a bit delayed from the last time we reported. Our target is to add two additional grow rooms for a total of seven and increase canopy and annual biomass production to 19,000 square feet and 12,000 pounds respectively by the end of this year. At the retail level in Virginia, both our Manassas and Sterling locations experienced a significant increase in revenue since July 1st, following the removal of the patient registration process requirement, which eliminated a significant barrier for patients waiting to enter into the medical cannabis program. As a point of reference, we saw approximately 1,950 new patients over the course of the whole second quarter before the change in the requirement. In only the first month following the change, we saw approximately 2,300 new patients. August looks equally as promising, even though the state has experienced some product shortages. Subsequent to the second quarter, we opened our third store in Alexandria, which was our most successful new store opening ever in terms of immediate sales in the weeks following the opening. And in just a couple of days, we expect to open our fourth store in Fairfax, which we believe is also well positioned for a strong opening. As a reminder, both Fairfax and Alexandria stores are designed to be among the highest volume stores in the country, which we expect when Virginia brings on adult use in the first quarter of 2024. And in Massachusetts, we have grown our wholesale business and expanded our offering of Juicy branded products we sell through our nature's remedy stores. We are now in 73 licensed dispensaries in Massachusetts, up from 62 as we previously reported in May of this year. Continuing to slide 12, in the second quarter we established our fifth vertically integrated state level operation in Ohio. with a provisional medical retail license awarded by the Ohio Medical Marijuana Control Program. Construction began this summer and the new location is expected to open in the fourth quarter of this year, subject to regulatory approval. Establishing a retail presence in Ohio and becoming vertically integrated is expected to accelerate our path to profitability and turn around a business that historically has not been profitable. Additionally, We have secured a parcel of land adjacent to our facility, which provides additional expansion opportunities as we look to triple our cultivation area from 3,000 square feet to 9,000 square feet over time, pending regulatory approval. With triple stacking, we should be able to adequately support a store base of five, which is the limit in the state. We continue to explore and assign LOIs to grow our store base. Moving to slide 13. We expanded our West Coast retail network in the second quarter with the opening of Beyond Hello Grover Beach, California. This door opening marks our third dispensary in the Golden State and is located in the thriving beach town that sees an annual tourist population of approximately 2.2 million. Additionally, after the quarter, we reopened our Beyond Hello Palm Springs, California location with the reimagined design and in-store experience. Let's move to slide 14 for a discussion of our branded products expansion. In the second and third quarters of 2022, we debuted two new innovative product lines in Pennsylvania under our brand, The Lab. The first line is comprised of solventless live rosin extract products, including live rosin vape cartridges and jarred concentrates, a first of its kind in Pennsylvania. The product is formulated using premium flour and extracted using proprietary processes to preserve the integrity of the plant. The second line is made up of live resin vape cartridges and concentrates produced using hydrocarbon extraction process, which uses high-quality fresh frozen cannabis. Throughout 2023, the lab solventless live rosin and hydrocarbon live resin lines are expected to be fully available across our footprint in Massachusetts, Nevada, Ohio, and Virginia, pending regulatory approvals. Looking ahead in Pennsylvania, we expect to increase our profitability by diversifying our branded product offering and increasing penetration of our own branded products throughout our large dispensary network of 18 dispensaries, including the addition of many new strains under our brand, The Bank. An historic lack of strain diversity due to historic regulatory constraints caused us too often to have to mark down pricing in the first half of the year. In addition, the very limited strain diversity and lack of hydrocarbon and solvents products limited the number of Jushi branded products and thereby negatively impacted our vertical margin during the quarter as we needed to carry much more third-party products to satisfy patient demand. Also, lost sales due to the vape recall and one-time discounting occurred following the reversal of the vape recall, where temporarily and unjustifiably recalled products were placed back onto our shelves as they approached their expiration date and subsequently needed to be moved at expedited rates. With the regulatory change in December of 2021, we are now producing many new strains, which has started to help drive SKU count and product diversity and ultimately expand vertical sell-through as well as wholesale potential. In Massachusetts, we will be debuting a new line of infused chocolates under our Tastology brand in September. These cannabis-infused chocolates are made of 100% premium French chocolate and developed by a five-star pastry chef. Additionally, Early in the fourth quarter, we expect to launch newly reformulated cannabis-fused chews that are 100% vegan, gluten-free, and contain real fruit. In California, through a capital-light strategic partnership, we expect to launch several new and innovative Juicy branded products to be exclusively sold at our Beyond Hello dispensaries in California. These products are expected to increase gross margins at our California stores as we expect these to be our lowest price, highest volume, and highest margin products. We have also introduced third-party branded flower products as our house brands, which also should achieve the same financial goals as the above-mentioned Jushi branded products. Before I hand over the line, I am pleased to announce that just a couple of weeks ago, we officially transitioned to reporting issuer status in the United States. As mentioned earlier with this transition, we have converted our financial reporting from IFRS to GAAP in accordance with SEC reporting requirements. With our new status as a U.S. reporting issuer, we are well positioned to take advantage of potential opportunities that could come with U.S. legislation changes surrounding cannabis, including the ability to uplist to a U.S. exchange. among other potential benefits related to capital funding and banking. In the meantime, we continue to focus on building a robust cannabis platform while simultaneously preparing to take advantage of these opportunities when they arise. With that, I'll now ask John to review our financial results before we discuss our 2022 outlook. John?