Jushi Hldgs Inc Cl B

Good afternoon. My name is Camilla and I will be your conference operator today. At this time, I would like to welcome everyone to Jushi Holdings, Inc.' 's fourth quarter and full year 2023 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 afternoon and thank you for joining us today. on Jushi's fourth quarter and full year 2023 earnings conference call. My name is Lisa Foreman, and I am the 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 Mosier, 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.yushiko.com. In addition to the company's GAAP results, management will also provide supplementary results on a non-GAAP basis. These 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.jishiko.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 JUCHY 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 statements. The risk factors that may affect actual results will be detailed in JUCHY's 10-K and other periodic filings and registration statements. These documents may be accessed via EDGAR and CDAR, as well as the investor relations section of our website. These forward-looking statements speak only as of the date of this call and should not be relied upon as predictions of future events. Dushy expressly disclaims 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 provide a high-level overview of our financial performance as well as discuss our operational achievements and developments over the year. I will then turn the call over to Michelle to review our financial results in further detail before opening the question and answer period. 2023 was an incredibly important year for Jushi as we achieved many crucial steps to drive growth over the next year. I will outline three of these important achievements. First, we optimized and stabilized our revenue base, as well as consistently generated significant margin growth and began deleveraging through increasing EBITDA and paying down debt. Next, by implementing far-reaching cost cuts, scaling our grower processors in Pennsylvania and Virginia, implementing strong commercial practices, as well as implementing ongoing program of growth and optimization across our grower processor footprint, We have been able to increase our output and produce higher margin products to support our strong retail network and grow our Jushi branded product sales across our vertical markets. This strategy enabled us to increase our gross profit and reduce our operating expenses, which resulted in adjusted EBITDA growth of $33.7 million in 2023, reaching a total adjusted EBITDA of $40.8 million for the 12 months of 2023, with an adjusted EBITDA margin of 15%. Lastly, we put into place a physical plan, store infrastructure, and a management team that will allow us to return to industry-leading revenue growth when three of our key states convert from medical to adult-use programs. The incremental margin of the adult-use sales growth should be much higher than our existing margin, given the operating leverage in the business. Given Jushi's concentration in two of these states, Pennsylvania and Virginia, the company's revenue and EBITDA will dramatically change for the better. We are not standing still and waiting for the adult use flips in Pennsylvania, Virginia, and Ohio. We are working very hard to expand our margins in our existing business through a continued focus on efficiencies and utilizing better operating techniques. I would like to take a moment to highlight some examples in our grower processor business, demonstrating the progress we have made in 2023, and then discuss areas that have the most opportunity for the company in 2024. In 2023, we made the grower processor business much more data driven by increasing the amount of data we track and analyze, as well as upgrading almost all senior and plant level staff management. As I discussed earlier, we scaled up our growth to meet market needs and focused on a robust new products effort to add variety, excitement, and margin to the business. Several current initiatives that are aimed at yielding efficiencies and profitability benefits for 2024 include reducing green waste by optimizing our cloning procedures and reducing our bud loss during harvest, increasing our use of state-of-the-art plant sanitation techniques and equipment, Expanding a fourth quarter post-harvest processing task procedure that may have significantly improved our post-harvest processing techniques. And four, reducing the time to market for new higher margin products. The main goal of these efforts is to improve our product quality and value to the consumer as well as increase the potency and yield of our grower processor under the existing canopy without deploying significant new capital, but rather better utilizing capital previously spent. Our 2023 benefits from our grower processor optimization were significant as we increased total pounds of biomass harvested by approximately 26% from January 2023 to January 2024. In addition, in the fourth quarter of 2023, Jushi brought to market 175 new unique SKUs across our five vertical states, which helped us fuel the growth of Juicy Branded products to 53% of total retail revenue across our vertical footprint compared to 36% in 2022. In line with our success with product quality and product cost, I'm incredibly proud to share that we grew our wholesale revenue in 2023 with a 30% improvement over the previous year. We also celebrated our highest revenue week of 2023 during the second to last week of December. The effective coordination and communication between our retail and commercial teams enabled us to gain market share from our competitors owing to a highly targeted, strong promotional campaign that led to our highest volume of total Jushi sales recorded for the year. This success even surpassed traditionally high-performing sales periods such as Green Wednesday, and 420. I'll now briefly highlight several state-specific standout performances over the fourth quarter. In Virginia, retail sales grew 42% year-over-year across our full complement of stores, despite bordering state Maryland's transition to adult use in July. In the fourth quarter, we launched additional products under the Bank brand, as well as Tasteology chocolates, which is an in-demand product. We believe customers appreciate the care we put into selecting and responsibly sourcing our ingredients. Also, our patient growth remains robust with over 53,200 total number of unique patient visits at Beyond Hello dispensaries within Jushi's exclusive retail service area as of the close of business on March 1st, 2024. Next, Pennsylvania. where we recently debuted tasteology trochees, which are now available to consumers and are already generating strong consumer buzz and positive feedback. Tasteology trochees are differentiated by being one of the only vegan trochees utilizing natural ingredients such as fresh fruit purees responsibly sourced from France. Sales in Illinois have begun to stabilize following the large first and second quarter 2023 declines due to Missouri's launch of adult use sales. We have received anecdotal feedback from Missouri customers who say that they are returning to our stores due to the price, value, and high quality products offered across our Beyond Hello retail locations. In Massachusetts, our Kingsborough Beyond Hello dispensary processed a single-day record, breaking 1,904 orders on December 22nd. We also rolled out a statewide revamped structure of our everyday value 1-8 product offering with a more focused, user-friendly menu for customers, which has proven to be well-received with a phenomenal 12,000 units sold in just three weeks in November, making a seven-fold increase over the previous promotions. And over in Ohio, We have seen great sales momentum following the successful execution of promotions offered around our first holiday season, which helped contribute to our second highest week during the second to last week in December. Also, we look forward to the developments taking place in this state with the approved for implementation adult use program. Jushi is excited and prepared to serve a new demographic of consumers. Over the past year, it has been encouraging to see meaningful reform advocacy efforts from both lawmakers and industry leaders at both the state and federal levels. With several initiatives underway in several markets, we believe Jushi is strategically positioned to capitalize on the new era we expect the industry is about to enter. With adult-use sales coming to Ohio in the near term, Pennsylvania will now border five states with legal adult use markets, once again fueling discussions among lawmakers. We are incredibly supportive of Governor Shapiro's recent comments during and following his yearly budget speech, stressing the urgency to establish Pennsylvania's adult use market to help curb the rampant, unregulated illicit market while also ensuring the state and its citizens do not lose out on the benefits the establishment of adult use market could bring, such as tax revenue and job creation. In Virginia, we remain hopeful that Governor Youngkin will not veto the long-waited recreational sales bill, which would allow adult-use sales to begin on May 1, 2025. Our efficiencies, cost reductions, product diversity, and quality in a legal, tested setting brings patients into the legal market. However, we believe the illicit market continues to operate freely and thrive with the Commonwealth's policy for legal possession without legal procurement, which is a very significant public health and safety concern. Pennsylvania, Virginia, and Ohio combine to represent 24 out of 35 of our operating retail store licenses. which places approximately 69% of our current retail store footprint in states that we believe are likely to soon transition to adult use. In anticipation of these potential future markets, we continue to prime our platform to be ready to scale as needed. Looking ahead to 2024, we believe our established nimble footprint puts us in an enviable position in key markets that have yet to be fully unlocked, enabling us to capitalize on our fast follower approach to expand as demand evolves. Throughout 2024, we will continue to focus on launching innovative products, increasing our operational efficiencies, and de-levering our balance sheet through a variety of mechanisms. The reduction of debt will include non-dilutive methods such as cash from the balance sheet, free cash flow, the sale of underperforming or non-cash generating assets, state tax refunds, and the potential ERTC program refund claim for approximately $10.1 million. Starting in the summer of 2023 and through today, we have paid down $7.3 million of first lien debt and reduced other debt by $5.1 million for a combined funded debt reduction of over $12 million. This brings our debt subject to schedule repayments to $193 million. With that, I'll now ask Michelle to review our financial results before we open the call to questions.

Thanks, Jim, and good afternoon, everyone. Revenue in the fourth quarter was $67.8 million as compared to $76.8 million in the prior year quarter. Full year revenue was $269.4 million compared to $284.3 million in the prior year. The year-over-year decrease in revenue can be attributed to a reduction in sales in Nevada and Pennsylvania due to increased competition and pricing pressures, a reduction in Illinois sales due to the impact of the state of Missouri beginning adult-use cannabis sales, and the closure of four underperforming stores in California and Pennsylvania. The decrease was partially offset by increased retail sales in Ohio, Massachusetts, and Virginia as well as increased wholesale revenue. Notably, as mentioned earlier, wholesale revenue achieved significant growth, increasing by approximately 30% on an annual basis and 10% quarterly. The ongoing enhancements in our cultivation and processing facilities have enabled us to diversify our product offering to become more competitive in terms of quality, cost, and distribution which ultimately allowed us to grow our wholesale channel over the year. Additionally, in our five vertical markets, Jushi branded product sales grew as a percentage of total retail sales from 47% in Q4 2022 to approximately 53% in Q4 2023. Gross profit was $27.2 million in the fourth quarter, or 40% of revenue. compared to $22 million or 29% of revenue in the prior year quarter. On an annual basis, gross profit grew by 22% to $116.2 million or 43% of revenue compared to $95.5 million or 34% of revenue for the full year 2022. The continued improvements in our gross profit and margin profile were a result of increased operating efficiencies across our grower processor facilities and increased sell-through of our higher margin Jushi branded products, as well as ongoing cost savings initiatives, such as reduced packaging costs. Market price compression and increased competition across various markets partially offset the annual and quarterly gross margin improvements. Selling, general, and administrative expenses for the fourth quarter were $25.2 million, compared to $39.1 million in the fourth quarter of the prior year. Annually, SG&A expenses were $110.5 million in 2023, compared to $156.2 million in the prior year. For both the quarter and full year, The key driver of the savings was the reduction in salaries, wages, and employee-related expenses as we right-sized the organization and made changes to our staffing model across our retail network. Additionally, lower share-based compensation expense reflects lower value of share-based compensation granted, as well as forfeitures for unvested equity awards. The prior year included expenses related to our transition to GAAP reporting and costs associated with our registration with the SEC. Asset impairments for the fourth quarter and full year of 2023 were $8.6 million. For the prior year, asset impairment charges for the fourth quarter were $122 million, and for the full year were $159.6 million. The current year impairment charge was primarily related to a $7.3 million charge in Nevada due to the company's lower than expected operating results, driven in part by the overall decline in the retail market within the state. The net loss for the fourth quarter was $18 million compared to $139.9 million in the prior year's quarter. For the full year, the net loss was $65.1 million compared to $202.3 million in 2022. For the fourth quarter, adjusted EBITDA was $11.3 million compared to $6 million in the prior year's quarter. On a sequential basis, adjusted EBITDA as a percentage of revenue was 16.7% compared to 14.8% in the third quarter. Full-year adjusted EBITDA was $40.8 million compared to $7.1 million in 2022, representing an improvement of $33.7 million. Adjusted EBITDA improved as a result of increased growth profit due to realizing the benefits of operational efficiencies in the reduction in SG&A as previously discussed. Moving ahead to the balance sheet, As of December 31st, 2023, the company had approximately $31.3 million of cash, cash equivalents, and restricted cash. During 2023, we paid $10.7 million in capital expenditures. In 2024, the company expects maintenance capital expenditures to be approximately $3 to $5 million. Capital expenditures for new projects will be dependent on expansion in certain markets that may transition to recreational use. As previously reported in the second quarter of 2023, we submitted a refund claim for approximately $10.1 million for the employee retention tax credit, which is currently still under review. As of December 31, 2023, we had $225.6 million of principal amount of total debt, excluding leases and property, plant, and equipment financing obligations. As of December 31, 2023, we had $200.8 million of total future aggregate debt maturities, excluding the contractual maturities of the company's promissory notes payable to San Martino and Jushi Europe debt, as the repayment of these two debts are contingent on the resolution of the San Martino matter and completion of the liquidation of Jushi Europe, respectively. Subsequent to the fourth quarter, we further reduced our debt by $7.5 million with the scheduled payment of approximately $2.4 million on our first lien financing with Sunstream Bank Corp. Additionally, we refinanced approximately $9.9 million of unsecured debt with $4.8 million principal amount of second lien notes, fully detached warrants to purchase an aggregate of $1.8 million of GCU subordinated voting shares, and payment of $2.8 million of cash. In the fourth quarter, we had NAC cash flows provided by operating activities of $4.5 million, and for the full year, cash used in operating activities was $3.3 million, a significant improvement over the prior year where cash used in operating activities was $21.4 million. And with that, I will now turn the call back to Jim for concluding remarks.

Thank you, Michelle. To conclude, we believe the future is bright for Jushi. We believe that three of our core states are on the cusp of flipping to adult use. These three states make up 69% of our operating retail footprint. We would expect this to have a sizable impact on both our top line revenue as well as our profitability. As always, I want to thank our amazing team for all of their hard work and dedication, as well as the support of those who have joined us on our call today. I look forward to providing our next progress update on our next call for the first quarter of 2024. Operator, please open the call to questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. And you may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Frederico Gomez with ATB Capital Markets. Please proceed with your question.

Hi, good evening. Thank you for taking my questions. First question is just on the margin, on the gross margin line. You reported a sequential decline from Q3. So could you just provide a little bit more color on what drove that, what's related to one-time factors or seasonality? or something more structural? And how do you view your growth margins evolving through this year? Thank you.

So, yeah, two things. It primarily had to do with we were selling through some inventory, you know, at discounted prices to move it through. And that happened in the fourth quarter as generate cash and We were a little excess in a certain area in a certain state. So we cleared that up for the most part in Q4. It was cash flow generative. And then the other was the higher discounting at retail related to the Christmas season, which is highly promotional.

Thank you for that. And then just on the wholesale side, you mentioned a 30% increase for the quarter. I guess maybe a portion of that was related to what you just mentioned, but what are you seeing in the wholesale environment and opportunities for growth this year? Do you expect that sort of growth that you're seeing to continue in 2024, as well as any comments on the pricing environment out there? Thank you.

Yeah, so our wholesale business has been growing pretty steady. We haven't seen any reason to think that won't happen. And there's been some quarterly things where it looks sort of higher. Maybe that was last quarter. But it's been a pretty steady growth. Our pricing in our states, for the most part, has pretty much stabilized. And we can grow, particularly in Virginia. And we've seen some growth in Massachusetts. And then, you know, Pennsylvania, we haven't had product available for sale. We've used a lot of it internally. So as our yields have gone up, you know, we may have an opportunity there we have to see. And that's the primary part of the business. And then, you know, in addition to that, we have an increase of new products, which tend to be higher margin and sort of the things we think that the market wants. And, you know, our time to market is decreasing. We've been doing new products for about a year now at a pretty nice pace, but, you know, the time to market is decreasing. So we just see more new products and, you know, newer genetics and higher potencies. You know, hopefully we'll have more in-demand products in markets where we think we have ability to grow anyway. So that's how we see the opportunity.

Thank you very much. I'll hold back the queue.

Our next question comes from the line of Russell Stanley with Beacon Securities. Please proceed with your question.

Good afternoon. Thanks for taking my question. Sounds like you still have some level of optimism with respect to Virginia and Adelius. Just wondering, given the media reports around the difficulty getting a deal done, what your latest read is there and the odds of success?

Yeah, thanks, Russell. Yeah, I mean, I don't know that we expressed, you know, I think we've had a similar point of view in Virginia. I don't think we're more optimistic or less than we were just a few weeks ago or a few months ago. I think we're entering, you know, the late stages of the process where, you know, negotiations happen. There's a bipartisan state. You know, it's a little different in the United States, the way we do things. It's very similar at the state level to the federal level in the sense you have a House and a Senate and a, and an executive branch, in this case, the governor. And so it's all negotiation. The House and the Senate are Democrats. They've passed the bill, put it on the governor's desk. And now we're at the stage where the governor has some priorities. This has all been in the newspapers. He's been very clear what he wants. The Democrats are clear with what they want. And we'll see how this plays out. You know, whether I'm optimistic or not, I don't think really matters. It's about a month away. So, you know, I'm kind of looking at it like, you know, it's going to happen. A hundred percent, I think it happens, but the question is when. So, you know, we're going to find out in a month if it's this session or if it, you know, flips into the next session. I don't think any of these states we're in, Virginia or Pennsylvania, aren't going to happen eventually. The question is just timing.

Thanks for that. And maybe if I could, if I missed this, I apologize, but you started delivery, I think, at HSA1 a little while back and just wondering what impact that's had and how much traction you've seen.

You're talking about delivery in Virginia? HSA1. Oh, yeah. So we're, yeah, it's a, it's a, it's a, it's a focus. We have definitely seen growth. You know, I'm just looking at some numbers, but I would say it's still small, like what you saw in the fourth quarter is very small. It's just getting going. So I would say that's mostly upside. And what you need to do is we use a third-party delivery service. You need to sort of cut the deal for out of HSA, which is a little bit different deal. You need to sort of be able to let people know that that option exists or let potential patients know that option exists. And then because of the rules around advertising in the medical cannabis business in Virginia, that takes time to find the right channels and to get there. And there's a certain amount of momentum to it that needs to develop. But we're seeing growth, but it's small numbers right now. But it could be a very interesting avenue of growth over the next 12 months, I would say. It'd be interesting, I think, to look back and see where we are in this quarter and Q4 of this year of last year being 23 to Q4 of 24. I think you'll see some very interesting growth, but we have to make it happen.

Great. Thanks for the color. I'll get back to the queue. Thank you, Russell.

Our next question comes from the line of Pablo Zuanek with Zuanek and Associates. Please proceed with your question.

Good afternoon, everyone. Thank you. Look, just you gave us the bridge to be able to pay the $60 million loan due December this year. Obviously, you have the cash, asset sales, ERTC, free cash flow. But what about tax refunds? I mean, you have also taken a more proactive stance on 280E. You have these unrecognized tax benefits on the balance sheet, but you have not talked about asking for tax refunds for prior years. I don't know if you can discuss that and if you can quantify that, because obviously there will be extra cash flow for the year ahead. And related to that, in terms of when it comes down to cash flow, I guess we all appreciate the guidance. Pretty much you're implying you can pay your debt without having to issue equity. Under what circumstances would you be issuing equity in the future?

Thank you. Yeah, so I'd point out, Pablo, that the debt currently is $57.5 because we made a payment on January 1st. We'll make a payment on April 1st. That'll make it $55,000. So think of it as 55 million at the sort of end of this quarter. You know, essentially, it won't appear on the end of Q1, but it happens the next day, to put that in perspective. So we're looking at 55-ish by April 1st, not 60. And then, yeah, so in terms of the bridge, we've set aside a certain amount of cash, about $12 million on the balance sheet to pay. So, you know, take 55 minus 12 to get you to 43. If we get the $10.1 million of ERTC, which we have no reason to think we won't, that's been a government holdup based upon a very high number of small-dollar frauds that have happened over the years, and they just got out of control. I mean, I have a small business unrelated to Jushi where I must have gotten pitched everything. multiple times a week for some firm to file these claims for me. So if you do that, that's down to $33 million. And on top of that, we do have some tax refunds. For us, it's primarily state tax refunds because we've been pretty consistent in our approach in some ways to the federal 280E. And so we've already gotten a couple million in. In Q1, we expect some more of that kind of magnitude, not tremendous, but let's call it five million of tax refunds, maybe two or three million of asset sales. All that stuff will come in over the year. The timing is not, so you get down to, and then by the way, there's cash flow from operations. We generated four and a half million dollars in Q4, and that was obviously a nice quarter, but if you put in the next two quarters, I mean, I'm not making a prediction. We're not predicting numbers, but just pick a number. Before the cash flow from operations, I get down to sort of around almost $26 million. So you can get to a pretty low number. I think that we've been in the market talking to different lenders. We've had interest, but we're not in the market right now. But In the fourth quarter, the late third quarter, fourth quarter, we had some discussions, that sort of non-deal roadshow, but just with people kind of thing on the debt side. And then similarly, we've had a couple of discussions here and there. We believe that there's interest for Jushi First Lean Debt to roll. And I believe personally that we should delever. And so I would look to see you know, some version of $30 to $40 million of first lien replacing what is soon to be $55 million. So I hope that answers your question. And noting that none of that included equity.

That's right. And if I can just follow up on that. So to be clear, I think you said that in terms of any tax refunds at the federal level, in terms of income taxes, you have already applied for those or you have not, if you can clarify that. But also related to that, you know, and I know every company will take a different stance on this, Ascend and Trulieve have talked about going forward, there will be provision for taxes on a normal basis, assuming that there's no 280E. Are you also looking at doing that? Thank you.

Yeah, so I don't want to get too detailed to our strategy, but what I will say about refunds and federal is because we had a strategy in place regarding not paying 280E that's Consistent with the strategy, I would say that the industry's taken. Well, the two players, but I think you're going to see a lot more do it. And we don't have a lot of federal refunds. The more material ones are the states. So I would not look to that as a source of cash for us. And if it is, it's really not material. So we've had a pretty consistent policy. We were pretty early on to a tax strategy. related to 280E. And then in terms of going forward on the tax side, we don't comment on going forward numbers, but we do have our strategy in place.

Understood. Thank you. If I may ask a follow-up. So obviously, very strong growth in Virginia. I think you said 42% for the year retail. Can you talk more in general if we don't get REC approved in the next month, right? How is the competitive environment evolving? Is there more capacity in the market? Is there price pressure? Or is it still that you have a lot of demand growth? You talked about the 53,000 number in patients end of March 24. I don't know what the number was last year. Just give us a sense of momentum on the demand side and what's happening on the supply side in the market. Thank you. That's it.

Yeah, I mean, I think we have disclosed this number in the past, the patients in the past. So you might be able to go back and look at the transcripts. And I don't know what it is off the top of my head, but there definitely has been patient growth. But these are unique visits. There is no patient roles. Remember, you don't need a medical card. You just need a prescription. So there's no way to track it. So we're just taking the cleanest number that we can get off of our point of sale systems that we can be truthful about and know that it's correct. And so that's the way we've done it, right, is how many unique visits we've had. And so... And so there's clearly patient growth. We have six stores, the only six stores in our region, so we don't have retail competition. We have the delivery that should grow. And, you know, four of our stores are pretty consistently growing, and the other two are more subject to competition out of the illegal D.C. market. and are smaller stores anyway. I think they're going to be great rec stores, but I'd say we have four very consistent growers. We are adding more SKUs. You know, for example, we were unable to satisfy demand for gummy products. Gummy products tend to be, edibles tend to be very popular, both chocolates and gummies is what we have, but they're very popular in northern Virginia, and we were unable to satisfy that demand in the fourth quarter. And we've changed our, you know, we were ramping up on some newer products. So we have, you know, we definitely have growth in products. We haven't been satisfying demand out of our grower processor. So in terms of retail competition, the only one that we've had that will be new would be an increase in delivery out of the Columbia Cares because they're the ones who border us, but they've already been delivering, and it's not significant as far as we can tell. It's only their own products. So effectively, we have a sort of an exclusive right, as you know, and so the pricing pressure would really occur on the wholesale market But I think that the market has been fairly, I mean, people, you know, ColumbiaCare has an added capacity. GLEAP is their other license. It has not added capacity. We have added capacity. We can bring on more grow rooms for adult use. We don't plan to bring on more grow rooms. And then you have GTI, as you know, who added capacity last year in construction. At some point, that will come on this year. But I would imagine based upon what they do in other markets, they're very disciplined about bringing on grow rooms to satisfy demand. I think they, my guess, having not seen it, and they don't talk about it much, is probably size for adult use. And you would think that they'll bring on the grow rooms that they need to satisfy demand, you know, as opposed to, you know, anything else.

Thank you. Look, if I may, I just want to follow up. Obviously, among MSOs, you're probably one of the best positions in Pennsylvania relative to the size of your business, significant torque there. But can you talk about the performance of your 17 stores? And is there still more room to relocate stores to improve the per store performance? Thank you.

Yeah, we're in process. We're being very disciplined about relocating because we've learned a lot over the years. And when you're closing down a store and then reopening, the bar needs to be somewhat high. And so we're in negotiations on a property and I'm hopeful that that'll work. Last year we had one that didn't work that we weren't close on, but we were working on. This one's closer, and we think it's good property, and we hopefully get it open by the end of the year. And then the other store, we have one other store that we're targeting potentially to close and sort of reopen after we do that one. It's in the same region, so we're not going to do the close until we get this one going, and then we'll look at the other one because we'd be looking at the same leases. You know, I mean, the same market, so, you know, similar market, so the same area. And, you know, we're looking for very favorable long-term leases that really be profitable in the long term. So it's a slow process. And after that, I think we're pretty good at Pennsylvania. And then we are opening a store, we think, in Illinois. It's a license we already have. We want it. And we're working on that. And then we have a third dispensary that we're in negotiations pretty deeply in a new state. So we have three that are teed up that would be late this year or next year kind of thing. And then once we start flipping to REC, In one of our two large states, there's Ohio definitely coming, but in either Illinois or Pennsylvania, we will look when our stock price adjusts, which we believe it will. We'll also get the refinancing done at some point. We'll help our stock price. We'll be much more aggressive. We have a pipeline in the obvious states like Ohio. Maryland, and getting to the 10 in Illinois. In Maryland and Illinois, we will be pursuing a retail-only strategy until further notice. So we have no plans to, we think we'll be able to fill our shelves very, very well as we have with our first four stores in Illinois. So that's our strategy. It's a more capital-light, driving revenue, also giving us great purchasing power with MSOs. So, you know, if they want our shelf space, you know, if we have excess in Pennsylvania or Virginia, you know, that'll be part of the discussion. Or Ohio, for that matter, where we're vertical. So that's our strategy. So when I look at Jushi, you know, and we're very concentrated, 24 to 35 dispensaries focused on these three states that will flip. It's 100% almost that they flip. The question is when. And then on top of that, we have this platform that at that point, with one of them just flipping, because we're delevering anyway, that's going to be pretty damn good in terms of its leverage stats with a platform to grow, and there's not a lot of competition in those states I just mentioned. So for that matter, if we went down to Florida, which would be a lower priority for us given the capital intensity, we would need a higher stock price to want to think about that one, a much higher stock price. So with Jushi, you have the three states going, you have the refi, and then you have us having this platform. So it's a multifaceted event story over, I would say, a three to 24-month time frame, which I think is super interesting.

Understood. Very helpful. Thank you.

Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Jesse Redman with Water Tower Research. Please proceed with your question.

Hello. I had a couple questions on the cost management and efficiency optimization side. First on cost management, it looks like SG&A declined 35% year-over-year and 2% quarter-over-quarter. So big changes in the year-over-year, a little bit smaller, plenty smaller in the quarter-over-quarter. Curious how much more room you think you have on the expense control side and what you think SG&A might look like over the next year.

Yeah, I think the great, I think the 2% is a lot more like what it's going to be quarter over quarter, you know, the zero to two or zero to three or something like that, then that, you know, assuming our states don't flip to adult use, which may cause us to, you know, hire ahead effectively of, you know, when you open a store, you effectively have employees sit around and train, get trained for 20 days before it even opens, right? So, but assuming... Assuming we're not on that growth trajectory related to some external event like that, I would say you should see a fairly flat down cost base. You know, there's inflation, right? So you're offsetting inflation. So we've done the heavy lifting on the labor side, both hourly and salaried, and we don't expect to see a lot of it going forward. We do get a lot of productivity gains out of hiring new people who replace older people who leave for one reason or another. And so I think there's a lot of great productivity that comes in, and we have been able to, I think, cut costs. or cut corporate every quarter of the year last year. So it's not like we're not looking for it or there's not opportunities there, but we've just done a very good job over a two-year period starting in 22 and really kicking up in 23. Yeah, so basically there's a cycle of people leaving. Those, as I referred to as older, they're really just people who have been existing in our business for a long time with newer people, and we think that's generally a productivity winner for us. We have not lost many people that we weren't one way or another happy to lose, and so it's been a winner for us. Our big gain is on efficiencies and ramping up the grower processors, particularly in Pennsylvania and Virginia. These are very, very large facilities designed for adult use. They've been ramping up since the middle of last year, which is not very long. If you talk to some of the larger MSOs, who've been doing this on that side of the business at scale, you'll understand that it takes really 12 months to get at the beginning of where you need to be, and it could be almost 24 months. So we have a long way to go, and we think that's where we drive margin in this scenario where we're not growing revenue significantly because the states don't flip to adult use.

Yeah, that was going to be my second question was on the cultivation side. We talked about that a bit over the summer. Curious what progress we've made there in terms of increasing yields and potency and cutting production costs and how much more room you think you have to improve there next year or this year.

We've made tremendous progress. Our yields have been up quite dramatically at two of our three large locations. And the third location is they are up, but they started, you know, quite low. So, but there's, I would say one of our large markets, we could see circa 40 to 50% growth in yields. And our other markets, you know, we're looking at around, you know, 10% to 20% growth in yields, depending upon which market there. And then in terms of potency, I think we have a long way to go, and that's really moving your product to a higher mix, a higher margin mix. So in other words, going from sort of a lower to midline to the higher end market and sort of the good, better, and best model. We have a very, very strong offering on the good side, Seche, and it's a good brand, and it's also, you know, we've been able to deliver, you know, a really good, consistent product to customers. Our midline, you know, has been... on, I would say, the lower side of yields on the comparison basis. So as that gets up, that'll be more competitive. And then the higher end, we're not really selling that much into. And I think by the middle of this year, we should have a good solid offering there. And remember, being vertical with our 17, 18 stores in Pennsylvania and six stores in Virginia, et cetera, et cetera, and Ohio, we'll be able to find shelf space for that, and it will sell, and we'll be more competitive and hopefully higher margin. So that's a nice move, and we're going to obtain those yields without new grow rooms, just by growing more grams per square foot. So it's really with similar labor, similar electricity, and certainly similar lease costs or interest costs on a plant, depending if we lease it or own it. So there's a lot of leverage and margin in that for us.

Great. I appreciate the color. Thank you. Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for closing remarks.

Great. Well, thanks, everybody. I know we did a late one today at 5 o'clock, so I appreciate everybody making it, and we look forward to giving you an update again in the first quarter. Have a good evening. Bye-bye.

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