Jushi Hldgs Inc Cl B

Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to Jushi Holding Inc.' 's fourth quarter and full year 2022 earnings conference call. Today's call is being recorded. I will now turn the call over to Lisa Foreman, Director of Investor Relations. Thank you. Please go ahead.

Good morning. Thank you for joining us today for the Jushi Holdings Inc. Fourth Quarter and Full Year 2022 Earnings Conference Call. Joining me on today's call are Jim Cacioppo, Chief Executive Officer, Chairman and Founder, John Barrett, President and Founder, and Michelle Moser, Chief Financial Officer of Jushi. This morning, we issued a press release announcing our unaudited preliminary fourth quarter and full year 2022 financial results. which are available on our website under the investor relations section and filed on EDGAR and SIDAR. The company has not yet completed its reporting process for Q4 2022. The preliminary results presented herein are unaudited and based on the company's reasonable estimates and the information available to the company at this time. As such, the company's actual results may materially vary from the preliminary results presented herein and will not be finalized until the completion of its annual audit. In addition, any statements regarding the company's preliminary financial performance do not present all information necessary for an understanding of the company's financial condition and results of operations. The unaudited preliminary financial results presented herein were not reviewed by our independent registered public accounting firm. The financial statement 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, which is posted in the investor relations section of our website and will also be available in the company's MD&A for the year ended December 31st, 2022, which will be filed in the company's annual report on Form 10-K on EDGAR and on CDAR. All numbers herein are approximate and rounded to the nearest whole number. Before we begin, I would 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 information within the meaning of Canadian and security laws and forward-looking statements, with the meaning of United States security 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 will be detailed in Jushi's 10-K 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 would now like to turn the call over to Jim Cacioppo, Chief Executive Officer, Chairman, and Founder of JUSHE.

Thank you, Lisa, and thank you everyone for joining our call today. This morning I will provide an overview of our fourth quarter and full year 2022 performance and operational achievement. I will then turn the call over to Michelle to review our financial results in more detail before providing closing comments and opening the question and answer period. To begin, I'm happy to report both annual and quarterly top line growth despite an unquestionably challenging year for the cannabis industry. In the fourth quarter of 2022, revenue grew 17 percent year-over-year and 6 percent sequentially to a record $76.8 million, compared to $65.9 million in Q4 of 2021 and $72.8 million in Q3 of 2022. Full-year 2022 revenue increased 36 percent to a record $284.3 million as compared to $209.3 million in 2021. Additionally, in the fourth quarter of 2022, we showed strong adjusted EBITDA growth compared to Q4 of 2021 and Q3 2022, which Michelle will discuss later. Furthermore, in Q4 2022, Jushi had positive cash flow from operations in the amount of $2.9 million. We generated this strong growth as a result of several operational achievements over the course of the year and in the fourth quarter of 2022, including the expansion of our retail network and vertical footprint. However, as already mentioned by many of our peers, we in the industry face substantial macroeconomic headwinds, which had an overall impact on operating results. These included significant inflationary pressures, disrupted supply chains, and rising interest rates, among other things. These factors have led to increased cost of capital for Jushi and the industry, slower completion of investment projects, and pricing pressures across some of our markets. These pressures have unfortunately overshadowed the growth potential of the U.S. industry, especially in large developing markets which have yet to implement adult programs, such as Virginia and Pennsylvania, two of our primary markets. But first, I will summarize our operational achievements, including those that took place throughout 2022 and to date in the first quarter of 2023. First, our vertical operations grew from three to five states, with acquisitions in Nevada in 2022 and the establishment of an Ohio retail operation in Q1 2023. Through the acquisition of New Leaf and Apothecarium, we expanded our operational footprint in Nevada to four operating retail dispensaries, 47,000 square feet of cultivation and processing capacity, and 9,000 square feet of canopy. Additionally, in the first quarter of 2023, our first retail store opened near Cincinnati, Ohio, enabling us to capture the vertical margin in the state with our existing 17,000 square foot cultivation and processing facilities. Since opening the store, it has remained consistently busy and has exceeded our expectations. Next, seven new retail stores were opened over the course of 2022 across a few markets, including Nevada, Pennsylvania, and Virginia. As of the first quarter of 2023, we are now operating 37 dispensaries nationwide having just recently opened medical dispensaries in Arlington, Virginia, and the aforementioned Cincinnati, Ohio location. We expect to open one additional medical dispensary in Woodbridge, Virginia in 2023, which will take our nationwide retail footprint to a total of 38 stores. In 2023, our focus has shifted from rapidly expanding our brick-and-mortar footprint to optimizing our existing wide-reaching retail network, which includes our largest store, our Beyond Hello e-commerce platform. Lastly, significant progress was made on our expansion projects and our grower processors in Pennsylvania and Virginia. Throughout 2023, our Pennsylvania and Virginia grower processors are expected to continue showing more of their output potential with meaningful improvements in the second quarter. We should approach the full potential of these facilities in the second half of 2023 as cultivation and downstream processes are dialed in and the construction and supply chain issues like CO2 and mechanical systems are fully solved. In Virginia, we are also in the design phase of a second connected building that can increase the facility's total square footage up to approximately 260,000 square feet. We expect to do this in multiple phases, and we will not make a final investment decision on this expansion until we have visibility into the timing of the rollout of an adult use program in the state or we have a line of sight on the potential for $100 million of revenue in the medical market, which our current capacity should support with no third-party purchases or sales. Given our higher cost of capital, We have recently split the next phase into two pieces to develop the next leg of the expansion at a much reduced $35 million cost. Our 123,000-square-foot Pennsylvania facility is now delivering better yields and potency. This facility is equipped to produce ample supply for our 18 Beyond Hello medical dispensaries, which represent approximately 10% of the state's retail market. Margins should increase as we increase efficiencies, ramp up and eliminate third-party bulk biomass purchases, improve yield and potency, and roll out our new, innovative, high-end hijinks flower brand with new and improved genetics. I would note that unlike many operators, Jushi has had an established strong value offering with Seche and Bank Gold. However, our current high-end offering has been priced well below the best flower offerings in the market. Hijinx is being developed and rolled out to address the premium flower market to increase our margins as our newer genetics get more fully dialed in. In Q1, 2023, we expanded our 93,000 square foot Virginia facility and its canopy to approximately 15,700 square feet by bringing an additional flower room online for a total of six rooms. Later in 2023, the facility is expected to be running at approximately 18,700 square feet of canopy with one more flower room for a total of seven flower rooms. When the market requires more capacity, we can add an eighth grow room with minimal capex in the existing warehouse as part of our discretionary capital investment program. Our Virginia facility is well equipped to support our significant wholesale business as other Virginia license holders are opening additional medical dispensaries in 2023. In Virginia, we have grown a significant wholesale business, and we believe we have not yet fully met current wholesale demand. As a reminder, our Six Beyond Hello location in Woodbridge is expected to come online in 2023. In Q4 2022, Jushi has scaled to become EBITDA positive in Virginia, and we are seeing a continued steady growth of the medical market. We are adding approximately 1,000 new patient certifications a month in JUCHI's exclusive retail service area, and the total number of certified patients in our footprint to date in Virginia is approximately 22,620. With most of our capital expenditures requirements for Pennsylvania and Virginia facilities behind us, our 2023 spend for new projects is estimated to be approximately $13 million, of which $7 million is non-discretionary and $6 million is discretionary growth capital. The company's focus is now on optimizing our retail capabilities, improving product quality, and maximizing our yields, potency, and production efficiencies at the GPs. Part of this optimization includes expanded vertical sell-through of G-Sheet branded products into our stores. This has increased Jushi branded sales as a percent of total retail sales in our five vertical markets from 41% in Q3 2022 to 47% in Q4 2022 and 50% in Q1 23. As a percent of total retail sales, including Illinois and California, where we are not vertically integrated, Jushi branded sales products represent 36% of Q1 23 sales. We have made good progress with our cost savings and efficiency optimization plan. Throughout 2022, we have made significant cost cuts reducing our employee headcount from approximately 1,570 total employees at our peak in 2022 to approximately 1,310 total employees now. We also have significant non-employee cost cuts, which are more difficult to quantify but are significant in our view. At the corporate level, our workforce was reduced by 31%. At retail, there has been a 13% reduction in our average labor hours per dispensary per month from approximately 3,100 hours in April to of 2022 to approximately 2,700 hours in February of 2023. As of April 2nd, 2023, we expect to move to a budgeted labor hour model that will result in approximately 1,550 average hours per dispensary per month, resulting in a total estimated 50% labor hour savings since April of 2022, and we will seek to continue to improve our labor model to drive profitability. At our grower processors, we are right-sizing direct labor costs based on production KPIs and rationalizing our national team by deploying most of our formerly shared resources directly into facilities. We also drove significant packaging savings in 2022 and will seek to continue this process in 2023 with the shift to new packaging such as Mylar. Another example is our introduction of a one-gram cart in Massachusetts that has virtually the same cost to fill and package as smaller carts. These efficiencies began to hit our P&L in 2022 and will continue to flow through the P&L throughout 2023. On the legislative side in Virginia, we were disappointed at the slowdown in the implementation of adult use. However, our continued focus is on serving our rapidly growing medical patient population. Also, on January 1st of 2024, the medical program is expected to formally transition to the Cannabis Control Authority, known as the CCA, the Cannabis Focus Regulatory Body. This transition is favorable for license for operators since the CCA is staffed with individuals with cannabis-specific regulatory experience. I note that Virginia's implementation of adult use program is not off the table given that the CCA will begin regulating medical cannabis on January 1, 2024, and newly elected legislators will meet in Q1 of 2024 when Virginia is back in session. Cannabis remains very popular in Virginia, and we are hopeful that the new legislative body will reconsider adult use legislation. In the meantime, it appears that the current governor of Virginia has no appetite for additional licenses, which increases Jushi's strategic value and gives us time to invest in the market. In Pennsylvania, we are encouraged by recent movements with Governor Shapiro's 2025 budget request to include the legalization and taxing of adult use cannabis as well as the current increasing bipartisan interest in progressing adult use legislation in the Pennsylvania Senate and House. We will continue to work with the industry to seek to make adult use a reality in Pennsylvania as soon as reasonably possible. In summary, our footprint grew significantly in 2022. This year, we are shifting our focus to, one, optimizing the strong asset base we have built in 2022, two, becoming more operationally efficient, and three, generating positive free cash flow as soon as practicable. Our new and increased cultivation and production capacity, better genetics, and improved growing and production techniques that we have worked so hard on in 2022 and thus far this year gives us the ability to increase sell-through of our growing product line on our own shelves and through wholesale at higher margins. We have a fast-growing medical market in Virginia, and our two most important markets have a path to adult use in the coming year or two. As I mentioned earlier, we have only $7 million of mandatory capital expenditures for new projects. We also have identified an additional $6 million of very small but very high ROI capital investments, such as potentially moving a few stores in Pennsylvania, and potentially adding an eighth row room in Virginia. I'll now provide a brief update on actions we have taken that we expect will strengthen our capital position. In the fourth quarter of 2022, we successfully refinanced our senior secured notes, extending the maturity to 2026 in a very unique second lien structure, which creates a lower cost of capital at the first lien level. This second lien structure should help to minimize the first lien refinancing risk at the end of 2024. We are in discussions with several potential commercial banks for additional financings. Going forward, we do not currently expect to have any acquisitions in 2023 since developmental assets that were built several years ago are the only assets of theoretical value but will take significant cash to modernize to more efficient standards. Given our higher growth profile and scale in our most important markets, we do not feel the need to buy assets at this time, and instead we are focused on the efficiency and optimization of the assets we already own. We have some opportunity to raise non-diluted capital by selling non-cash flow generating assets, as well as taking part in the employee retention credit program. We currently plan to hold off on using these funds for investment until we reach sustainable, positive free cash flow so they can act as a buffer for the unexpected. To conclude, I'm extremely proud of our team and their dedication to achieving our shared goals. At the end of the year, we strengthened our board of directors with the addition of Bill Wofford as an independent director and chair of the audit committee. Additionally, senior leadership appointments and management changes were made, including Toby Leibowitz to Chief Legal Officer and Corporate Secretary, Nicole Upshaw to Chief People Officer, and Shawna Patrick to Chief Commercial Director, and Trent Wolovec to Chief Strategy Director. And now I'd like to welcome Michelle Mosier, who assumed the role of Chief Financial Officer at Jushi earlier this year. Michelle joins us from Hamilton Beach Brands and brings over 20 years of financial leadership experience, particularly in the CPG and global manufacturing industries. We are pleased to have Michelle on our leadership team, and I have no doubt that we will significantly benefit from her expertise as we continue to strengthen our financial and accounting practices across the business. With that, I'll now ask Michelle to review our financial results.