Jushi Hldgs Inc Cl B

Thank you for standing by. The Jushi Holdings call will begin momentarily. Please stay on the line. Good afternoon. My name is MJ, and I will be your conference operator today. At this time, I would like to welcome everyone to Jushi Holdings, Inc.' 's third quarter 2023 earnings conference call. Today's call is being recorded. I would now like to hand the call over to Lisa Foreman, Director of Investor Relations. Thank you, and please go ahead.

Good afternoon, and thank you for joining us today on Jushi's third quarter 2023 earnings conference call. My name is Lisa Foreman, and I am Director of Investor Relations at Jushi Holdings, Inc. With me on today's call are Jim Cacioppo, our Chairman and Chief Executive Officer, John Barrick, our president, and Michelle Mosher, our chief financial officer. This call is also being broadcast live over the internet and can be accessed from the investor relations section of the company's website at ir.yoshiko.com. In addition to the company's GAAP results, management will also provide supplementary results on a non-GAAP basis. Please refer to the press release issued today for a detailed reconciliation of GAAP and non-GAAP results, which can be accessed from the investor relations section of the company's website at ir.juchico.com. Additionally, we would like to remind you that during this conference call, we will make forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance, and business. Although Jushi believes our estimates and assumptions to be reasonable, they are subject to a number of risks and uncertainties beyond our control and may prove to be inaccurate. We caution you that actual results may differ materially from any future performance suggested in the company's forward-looking statement. We refer you to the company's current and periodic reports filed on Edgar and on Siddharth, including our most recent annual report Court on Form 10-K for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement. Does she expressly disclaim any obligation to update this forward-looking information? I will now turn the call over to Jim.

Thank you, Lisa, and thank you, everyone, for joining our call today. This afternoon, I will discuss recent developments in the industry and provide an overview of our third quarter 2023 performance and operational achievement. I will then turn the call over to Michelle to review our financial results in more detail before opening the question and answer period. First, I'll begin with a brief update on the current regulatory environment. While the pace of progress has not yet accelerated to the levels we would like to see, we are encouraged by the numerous developments taking place that have the potential to significantly advance the industry. These include the scheduling review of cannabis under the federal law currently underway, recent support for the Safer Banking Act, which received approval from the Senate Committee on Banking, Housing, and Urban Affairs, and 280E state tax relief in Illinois and the potential for the same in Pennsylvania following legislation advancements this past fall. And continuing this momentum, historic headway was made in the state-level elections last week in Ohio and Virginia. We were absolutely thrilled to see the people of Ohio come together and vote to make Ohio the 24th state to legalize adult-use cannabis for adults 21 years and older. In addition, the wins by the Democratic Party in the Virginia House of Delegates and State Senate increases the potential likelihood for a push toward changes around cannabis. With Ohioans voting to create an adult use market, Pennsylvania is expected to soon border five states with legal adult use cannabis, which we expect could accelerate ongoing discourse around cannabis reform to reduce continued losses in tax revenue with both patients and consumers moving across state lines to purchase products in Maryland, Delaware, New York, New Jersey, and now Ohio. Also, as discussed a little later on during the call, there's already an encouraging adult use process being conducted in Pennsylvania. We believe these efforts, if successful, will all contribute to building a stronger and safer industry for our employees, consumers, and communities. In line with these hopeful and exciting advancements across our footprint, we continue to strengthen our platform for maximum efficiency and capacity to ramp up as the market conditions improve. Moving ahead to the numbers, revenue for the third quarter of 2023 was over $65 million. Revenue declined by approximately 10% year over year. The year-over-year reduction was primarily due to lower sales in Illinois from the loss of sales at our Missouri border stores, and lower sales in Nevada and Pennsylvania, resulting from pricing pressure and increased competition, as well as the closure of three underperforming stores. These declines were partially offset by solid performance on our wholesale business and strong sales in Virginia, with contributions from recent new dispensary openings. While we previously anticipated returning to our peak quarterly revenue threshold of approximately $77 million this year, This has been impeded by continuing industry headwinds that are impacting operators across the board, slower store openings in Pennsylvania, and slower than anticipated new product approvals in Virginia due to an understaffed regulator. Jushi branded product sales grew to approximately 52% of total retail sales in the company's five vertical markets in Q3 of 2023, and accounted for approximately 49% year-to-date of total sales. retail sales in our vertical market. Our gross profit was approximately $29 million compared to approximately $28 million in the prior year. Gross profit margin was approximately 44% compared to approximately 38% in the prior year. Our year-over-year increases in gross profit and margin were the result of the continued effectiveness of the operational improvements we have implemented at our grower processing facilities in Pennsylvania, Massachusetts, and Virginia as well as increased sell-through of our branded products, which have higher margins. These were partially offset by the market price depression and competition in Illinois, Nevada, and Pennsylvania. Our disciplined cost management strategy has further driven reductions in our operating expenses, which were approximately $26 million for the third quarter of 2023. Year-over-year operating expenses were reduced by approximately $53 million or approximately 67%. The prior year period included a non-cash impairment charge of approximately $38 million related to the business license associated with operations in Massachusetts. So net of that, the improvement year-over-year was approximately $15 million or approximately 37%. Sequentially, our operating expenses decreased by approximately $2 million or approximately 5%. Adjusted EBITDA improved by approximately $9 million to approximately $10 million in Q3 of 2023, compared to approximately $1 million in Q3 2022. The results of the third quarter of 2023 demonstrate the continued progress we have made against our strategic initiatives to drive towards profitability. This includes improved productivity from our optimized retail labor hour model, corporate G&A savings, grower processor efficiencies, and other cost savings. On the grower processor side, we are continuing to see material improvement in yield and productivity at our grower processor facilities in Pennsylvania, Virginia, and Massachusetts. For example, we achieved up to approximately 19% increase of harvested pounds per hour in cultivation efficiencies and up to an approximate 49% increase of harvested and packaged pounds per hour in processing efficiencies at our Virginia facility in the third quarter compared to the first half of the year. We expect the remaining improvements to further bolster these numbers throughout the remainder of the year and next year. We are well exceeding our expected levels of gram grown per square foot in Virginia, with some impending improvements to come in Pennsylvania, which has been lagging due to various issues which should be behind us at some point in the fourth quarter. With every additional gram we grow per square foot, we are in high incremental margins. In my state-by-state discussion, I will begin with discussing Virginia, where we now have a full complement of stores open. Our sixth Beyond Hello retail dispensary opened this past August in Woodbridge, a suburban community close to bordering HSAs. Our Woodbridge dispensary has been an incredibly successful launch in the third quarter, a testament to its well-situated location on major highways and served by a commuter transportation route. We expect Beyond Hello Woodbridge to have the strongest Virginia store growth in the coming quarters. Patient growth in Virginia has remained robust with 31,347 total number of unique patient visits at Beyond Hello Dispensaries within Jushi's exclusive retail service area HSA2 as of the close of business on November 1st. The growth was approximately 4% since October 1st when Jushi had 30,216 unique patient visits. We have increased our delivery capabilities to expand our store reach and patient services and currently provide delivery seven days a week. Also, we just opened delivery into HSA1 where there are no retail stores given that MedMen lost this region's license. Delivery into HSA1 should be a good growth opportunity over time. Additionally, we have grown our wholesale business as others in the state have grown their retail presence and patient count. We continue to launch an array of new products to increase our product offerings for patients, which is something our recent survey shows they are demanding. In the third quarter, we launched five new products in Virginia, and we are launching three additional new products during the fourth quarter, and we have a strong pipeline for 2024. As examples, we launched Tasteology chocolates this month, And going into the new year, we expect to launch our infused flower brand, Sachet Kind Grind, which will then lead to infused pre-rolls. We expect our new SKUs will drive both sales and margin growth, and over time, patient growth. Moving on to Pennsylvania, the relocation process is underway for two of our previously closed stores, both of which are expected to reopen in 2024. With our deep market expertise, we have identified strong locations that should drive sales growth in the Commonwealth. Our 17th store is currently under construction and projected to open during the first quarter of 2024, followed by our 18th store later in the year. Statewide, we are starting to see signs that the pricing compression has not only stabilized, but is beginning to lift. In line with this encouraging trend, our wholesale business continues to perform well. There are numerous potential regulatory changes on the horizon, And the one that we are especially focused on is a bipartisan adult use bill that is currently under active development in the Senate. As previously stated, with adult use markets opening across various neighboring states such as New York, New Jersey, and Ohio, it is our belief there is an important incentive for lawmakers to support the passage of this bill to develop a popular and thriving in-state market with significant tax revenue benefits. In addition to the bipartisan adult use bill, the Pennsylvania House approved last month a large-scale tax reform bill that contains language to provide state-level relief to medical marijuana businesses. Also, a Pennsylvania House committee convened for an informational meeting on November 1st to hear from experts about adult use marijuana legalization as legislators chart a path for the reform. Governor Shapiro has been a consistent supporter of an adult use market and has included it in his 2025 budget. With a strong retail and grower processor infrastructure, we have the capacity to increase our sales and production without investing additional capital in our operations should adult use become a reality. Turning to Ohio, we are confident that we are in a solid position to establish our operations over time as the market develops here. Our vertical integration has put us in the enviable position to consolidate and bring on additional retail as the market demand builds. We are excited about the opportunity in Ohio and believe that we have the runway necessary to build a robust footprint in step with the state's industry growth. Many MSOs have completed their retail build-outs, which puts us in a small group of public companies with the currency and ability to expand our retail footprint. Ohio is projected to bring in over $4 billion in adult use sales by its fourth year and will become the fourth largest state with the cannabis recreational program. Already boasting a strong medical market, Ohio is poised to significantly increase tax revenue, which will undoubtedly assist in the formation of a robust state program as it is expected to bring in consumers from other restrictive bordering states. Sales are anticipated to begin by the end of 2024, provided there are no major legislative hurdles. We look forward to maximizing our position in the state to serve a new demographic of consumers, and as regulations evolve, potentially bring new product offerings and brands to this expanding market. Looking at our remaining markets, Massachusetts remains solid while we are starting to see a steady state in Illinois. Nevada has become a high focus area for senior management to improve operations and efficiencies at this newer operation. In Massachusetts, we have experienced incredibly positive consumer feedback thanks to our excellent product diversification, with our growth process running at desired levels. In the third quarter, we met our operational performance targets, and our landlord is finalizing a significant upgrade to the building's mechanical system per negotiated settlement. The Massachusetts market and our operational footprint in the state have been fantastic for our research and development pipeline in other states, and we are delighted to launch solvent-less concentrates under the lab brand here in the third quarter. Moving to Illinois, we have begun to see the expected leveling off following the initial drop post-Missouri adult usage. We are focused on ensuring our operations are running efficiently and capitalizing on our ability to acquire products at very attractive prices due to oversupply of supplier operations. We are collaborating with our industry partners on third-party branded product promotions to support sales on generally lower volume retail weekdays. Seventy-five percent of our third-party promotions offered on lower volume days have yielded above median year-to-date net sales. Our pricing net of taxes, as well as our product selection and quality, are more favorable than the St. Louis market. Lastly, our operational structural cultivation turnaround in Nevada is progressing well. Over the next few quarters, we look forward to launching several of our Jushi-branded products in Nevada that have proven to be successful in Massachusetts. This will help us achieve optimal production and high efficiency levels. We believe our enhanced product offerings will be a significant potential growth area for our Nevada wholesale business. In addition, we had unforeseen building issues which were out of our control that negatively affected our grower processor that we believe have been corrected. As for our brands and products, the success we have achieved in optimizing our operational footprint has provided the capacity needed to diversify our product mix nationwide. New products accounted for 5% of total Jushi third quarter package sales. Many of these new products, like larger vape cartridges, offer better value to our customers and better margins for Jushi. These larger format products are continuing to help us drive total dollar sales in our stores. We were thrilled to introduce our new premium flour brand, Hijinx, in Pennsylvania and Massachusetts, where it was the top five selling SKU on our Massachusetts store menus during Q3 of 2023. We anticipate launching it in Nevada in the first quarter of 2024. Hijinx offers superior flour and ensures top-notch quality to deliver consumers unique and curated experiences. Alongside this premium offering, we also bring value to customers who are looking for a better combination of quality and potency at the more affordable price point. An example is Sashay Kind Grind pre-ground infused flour and pre-rolled, which offers increased potency at a great price. Kind Grind has been a phenomenal success in Massachusetts since its launch in the first quarter, generating strong positive customer response. It's our number one selling eighth in our stores. We were delighted to bring the brand to Pennsylvania during the third quarter where it sold out within five days after launching in our stores. The Sashay larger format 14-gram fine grind comprised 3% of sales and 2% of units sold in the quarter. Overall, we debuted 10 new SKUs in Q3 of 2023 across five brands, with a further approximately 8 to 10 SKUs anticipated to be introduced to consumers by year-end. We expect to launch four new products in Massachusetts, six new products, including the launch of tasteology in Pennsylvania, and three new products in Virginia across brands in the fourth quarter. With these new products set to debut in the fourth quarter, we are maintaining our competitiveness on our own shelves with a whole range of flower products, from value brands all the way to the highest-end products. This differentiation serves many purposes, including, one, generating more demand, two, creating excitement in our retail network that drives sales growth, and three, selling more juicy branded products, which generate higher margins. We also have improved the user experience on e-commerce platforms, which has led to an approximately 20% conversion rate compared to an approximate 18% conversion rate from the previous quarter. Looking briefly at our balance sheet, we had $30.5 million of cash, cash equivalents, and restricted cash as of September 30th, 2023. To further boost our cash position, we are in the process of selling several non-cash flow generating assets. We intend to complete additional asset sales during the fourth quarter, which, if completed, could potentially generate up to $5.5 million in cash proceeds from these sales for this fiscal year, of which $2.3 million was received year to date. Additionally, as we have previously reported, during the second quarter, we submitted a refund claim for approximately $10.1 million for the Employee Retention Tax Credit Program, which is currently still under review. In conjunction with our cash-generating activities, we also reduced our senior debt with a scheduled payment in the fourth quarter of a further approximately $2.4 million on the company's first lien financing with Sunstream Bancorp for a total of $4.9 million repayments under this facility year-to-date. The momentum we have generated over the past nine months has been encouraging. The efficiencies we have been able to attain, coupled with the response we are getting from customers to newer products, has been very positive. As I look to 2024, I'm incredibly enthusiastic about what the future holds for us. With solid operational foundations in Ohio, Virginia, and Pennsylvania, we have the capabilities to not only meet growing medical use demands, but also capitalize upon the commencement of potential and long-awaited adult use. The impact of these states moving to adult-use markets would be a positive game changer for both our top-line revenue and margin profile, given our store footprint in Pennsylvania and Virginia, which comprise approximately 65% of our retail store portfolio. As we have only one store in our vertical business in Ohio, we are excited to return to the M&A market with this very strategic platform build-out. With that, I'll now ask Michelle to review our financial results before we open the call to questions.