Jushi Hldgs Inc Cl B

Good morning. My name is Hilda, and I will be your conference operator today. At this time, I would like to welcome everyone to Jushi's Holdings Incorporated's third quarter 2022 earnings conference call. Today's call is being recorded. I will now turn the call over to Michael Pearlman, Executive Vice President of Investor Relations. Thank you, sir. Please go ahead.

Good morning. Thank you for joining us today for Jushi Holdings Inc. third quarter 2022 earnings conference call. Joining me on today's call are Jim Cassioba, 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 preliminary third quarter 2022 financial results. The company also announced that it's in the process of completing its interim asset impairment assessment and expects to record a non-cash indefinite lived asset impairment charge in the range of $35 to $49 million. The press release along with the presentation that accompanies this call are available on our website under the investor relations section and filed on EDGAR and CDAR. As a reminder, on August 12th, Jushi became a US reporting issuer under United States securities laws and has converted its accounting standards from IFRS to US GAAP. Thus, all financial statement information has been prepared based on US 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 September 30, 2022, which will be filed on EDGAR and 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 JUCHI's 10-Q and other periodic filings and registration statements. These documents may be accessed via EDGAR and CDAR. 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'll now turn the call over to John Cassioppo, Chief Executive Officer, Chairman, and Founder of JUCHI.

Thank you, Michael, and thank you, everyone, for joining our call today. Let's begin on slide four. This morning, I'll provide an overview of our third 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 summarize the call. A question and answer period will then follow. Moving to slide five. During the quarter, we made considerable progress building out a robust operating platform while maintaining a strong top line. despite a persistently challenging macroeconomic environment. Year over year, our revenue grew 35% to $73 million in the third quarter, compared to $54 million in the third quarter of 2021. Driven primarily by our acquisitions in Massachusetts and Nevada, increased sales at our existing stores in Virginia, and the expansion of our nationwide retail footprint from 24 to 35 stores. While revenue was essentially flat on a sequential basis, I am pleased with the expansion of our margin profile in the third quarter as our gross profit margin expanded approximately 144 basis points to 38% compared to 37% in the second quarter of 2022. This increase is demonstrative of our early progress we are making on our initiatives to improve profitability, including increasing production at our grow processor facilities and the execution of our private brand sell-through strategy. Let's move to slide six. In the third quarter, we continued to drive our vertical margin with a notable increase in private brand penetration across each of our markets as we expanded the available shelf space for our products in our stores. In fact, the sell-through rate of our own branded products improved by over 600 basis points to 28% of total retail revenue in comparison to approximately 21% in the second quarter of 2022. Most impressively, we saw an approximate 90% quarter-over-quarter increase in private branded products sold throughout and beyond Hello Stores in Pennsylvania, driven by increased production at our growth process facility in Scranton. Our private brand sales also grew in Virginia by approximately 13%. However, our growth was limited by our own product availability in this market. More on this in a moment. We are seeing that our enhanced brand promotion increased availability of Jushi branded products, and recent innovative product launches are resonating with our customers. Specifically, in the third quarter, our concentrates brand, The Lab, which was recently expanded to include solventless and hydrocarbon products, saw an approximate 150% increase in units sold as compared to the second quarter of 2022. Also notable was the near 80% quarter-over-quarter increase in units sold of our flower brand, Seche, indicating a continued interest in valued products among our consumers. Wholesale sell-through also increased moderately by 7% quarter over quarter, showing continued positive momentum, particularly in Nevada with an approximate 74% increase and Ohio and Massachusetts being the two other notable markets that improved sequentially. In fact, we were able to increase the number of wholesale customers we work with by 38 during the quarter. Virginia wholesale sales were reduced as we were limited by our own production capacity, and we allocated most of our inventory to our four open stores, thereby reducing inventory available for wholesale. As we begin the fourth quarter, we are seeing our inventory position improve in Virginia. new cultivars and form factors becoming available in Pennsylvania, and increased distribution in Massachusetts, Pennsylvania, and Nevada. As a result, we expect wholesale sales to grow significantly in the fourth quarter. The sequential growth in our wholesale business is notable since many dispensary operators have reduced shelf space dedicated to third-party suppliers in order to promote their own brands and maintain or improve profitability. Having a very significant retail business in seven states which purchases third-party products helps us on the wholesale side of our business. I am encouraged by our sell-through performance in the third quarter at both retail and wholesale and expect to continue to share progress on this metric as we increase production at our grow processor facilities and broaden our product portfolio. On our last two calls, we outlined our cost savings initiatives in detail. I'd now like to provide a brief update on each. First, at retail, we expect to have reduced costs by approximately $8 million throughout 2022. Recently, we have made changes to our labor model that are expected to result in lower operating expenses beginning in the fourth quarter and accelerating into the new year. For example, we are increasing our mix of part-time employees, allowing us to flex staffing levels to be more closely aligned with sales. Other fourth quarter initiatives include optimizing our field leadership model by bringing in high-quality state-level retail directors, which has allowed us to reduce the number of field leadership roles needed to manage our retail footprint. Reducing our construction labor force at store opening slow from an average of about a dozen per year over the past 24 months to a much smaller number. And reducing the number of non-essential staff at our dispensaries. I would also note that in our experience in medical markets, most stores lose money for at least six months after opening as advertising opportunities are very limited by regulation, and it takes time for a location to build its patient or customer list. Additionally, the 45 days before opening are big investments as we hire and train personnel without any corresponding sales. Given that we will have substantially built out our store licenses by year-end, this drag should dissipate in 2023. Next, at our grow processor facilities, we remain on track to achieve our target of approximately $12 million in total cost savings for fiscal 2022. We are also realizing the benefits of newly implemented automated technologies, including wet bucking and curing, that have a positive impact on both quality and yields of our harvests. In Massachusetts, through automation, we have increased our capacity to produce packaged flour fourfold. As we plant our new flour rooms, we are closer to full-scale production at our newly expanded grow processor facilities in both Pennsylvania and Virginia. While we plan to bring the initial harvest from new flour rooms to market beginning in early 2023, we expect these two facilities to break even by the end of the year and begin contributing materially to our profitability in 2023. It usually takes about 12 months to obtain peak yields with the diverse set of genetics, so we will see profit improvement throughout the next 12 months in both of these large expansions. Lastly, at the corporate level, we are finalizing the build-out of our accounting and IT departments to support our new financial reporting structure and continue to responsibly manage costs where necessary to maintain a steady-state G&A level, if at all possible. I'll now highlight our operational achievements over the next few slides. Let's begin on slide eight. In the third quarter, we experienced explosive growth to Virginia demonstrated by our strong retail performance and expansion of our patient base following the removal of the patient registration medical card requirement and new store openings in Fairfax and Alexandria. Sequentially, our active customer count in Virginia increased by over 210%, bringing in nearly 8,000 new patients in the third quarter compared to approximately 1,950 in the entire second quarter before the requirement was lifted. Moreover, Virginia retail sales grew sequentially by 48% and year-over-year by 200%. The opening of our third and fourth Beyond Hello stores in Alexandria and Fairfax contributed to this growth, with both locations having our most successful new store openings in terms of media sales in the weeks following the opening. In fact, both stores are tracking over 3 million in annual revenue and continue to see sequential improvement month over month. We also saw record-breaking traffic on our Beyond Hello website in the third quarter, mostly attributable to this market expansion. Our Beyond Hello Alexandria location is ideally positioned directly off the busy Capital Beltway Highway and located within a 15-minute drive to approximately 400,000 people. Our new Beyond Hello Fairfax location is nestled in the suburban expanse of Washington DC metro region and spanning 10,500 square feet. Beyond Hello Fairfax is also built as a larger format store like Alexandria and is strategically located close to George Mason University as well as the various shopping centers. Our Fairfax store may eventually be our best store system-wide. Each new location features several traditional and express checkouts along with our convenient online reservation platform, combining our best-in-class physical and digital retail experiences to serve our growing patient base in the Commonwealth. The stores are also designed to be among the highest volume stores in the country and are well positioned ahead of adult use sales, which are expected to begin on January 1st, 2024. And more recently, we partnered with High Road Cannabis Delivery in Virginia, This delivery program, which was initially launched at our stores in Alexandria and Fairfax, is performing well, and we expect to roll it out to our stores in Manassas and Sterling. In early Q1, we expect to open an additional store in Arlington, Virginia, which will mark our fifth in the Commonwealth, and we have plans to open our sixth location in Woodbridge in the first half of 2023. Our new store highlights include a recently relocated, underperforming store in Scranton, Pennsylvania to a prime location in Dixon City. This store opened just last week and was our second best store opening day in the company's history. We hope to move more stores in Pennsylvania in 2023 and early 2024 as we believe this is a very high return on investment initiative. Let's continue on slide nine. In just a couple of weeks, we expect to open our Beyond Hello Cincinnati making our first retail location in Ohio and establishing our vertical presence in the state. We view being vertical in Ohio as absolutely necessary to being profitable. I would note that getting to profitability in Ohio has taken a long time due to its stringent regulatory regime. We saved substantial shareholder dollars by entering Ohio as a vertical operator by separately acquiring a grower and a processor and winning a retail license from all for under $10 million. However, this strategy required us to run substantial losses to open these licenses in a very vertical market in 2021 and 2022. The state has difficult laws that make it expensive to enter the market but create a nice regulatory moat for operators. As we open our first door and gain from our experience in the market, this market should become profitable in the not-too-distant future. This is without a doubt a big investment priority for us as this market turns from a sleepy medical market in 2021 to a stronger medical market in 2023 with medical growth for several years and adult use on the horizon in 2025 or after. We are working on several deals to acquire additional retail licenses. In addition, we purchased a property adjacent to our growth facility to allow for future expansion. Overall, if you look at our operating losses and acquisition costs, we will have entered the Ohio market at a much lower price than most of our MSO brethren. Moving to slide 10. As mentioned earlier, we made notable progress on our expansion projects at our own grower processor facilities in Pennsylvania, Virginia, and Q3, allowing us to significantly increase our production over the quarter. In Pennsylvania, at our Scranton grower processor facility, we nearly doubled our canopy size to approximately 27,000 square feet, and increase our annual biomass production to approximately 15,000 pounds. We expect to end the year with more than 30,000 square feet of canopy and approximately 22,000 pounds of annual biomass capacity. Additionally, we ended Q3 with seven grow rooms and expect to add another four rooms in the fourth quarter. However, we are taking down two rooms, so only a net nine will be open. These two rooms are too large and are of legacy quality cultivation. When Pennsylvania grows adult use, we can turn these two overscale, low-quality grow rooms into five additional state-of-the-art 3,000-square-foot flower rooms. This expansion can be quickly activated at very low cost relative to a new build, as they are in our current warehouse and require minimal investment relative to a new build. Let's move to slide 11. The four new grow rooms we added in Virginia in Q2 and Q3 began generating revenue at the end of the third quarter. During the third quarter, we also introduced several new cultivars and launched our first product line of THC-only vapes. By the end of this year, or in Q1 2023, we expect to increase canopy and annual biomass production to approximately 16,000 square feet and over 10,000 pounds, respectively, and plant two new grow rooms. As mentioned earlier, our facilities are on their way to running at full scale, and we expect to more fully absorb fixed costs in the fourth quarter and into 2023. We are also seeing an improvement in the quality of our products coming out of these facilities following the investment in the implementation of various automation technologies that became operational in the third quarter. Let's continue to slide 12. In the third quarter, we launched our first line of cannabis-infused chocolates by Tasteology in Massachusetts. with an expected launch in Virginia in the first quarter of 2023. At the end of last month, we continued to expand our tasteology product offering in Massachusetts with the launch of newly formulated cannabis-infused fruit chews. We have the expectation to roll out this new product line in Virginia, Ohio, and Nevada in Q1 of 2023. We offer a full suite of almost all form factors across the company's asset portfolio, and expect to complement it by utilizing the experiences from our test markets as we move to having a full suite of form factors in every market we operate in. And with that, I'll now ask John to review our financial results before I summarize. John?