Jushi Hldgs Inc Cl B

Good afternoon. My name is Judith Van Rieder, and I will be your conference operator today. At this time, I would like to welcome everyone to Jushi's Holdings, Inc.' 's second quarter 2024 earnings conference call. Today's call is being recorded. I will now turn the call over to Trent Wolovec, Chief Strategy Director. Thank you. Please go ahead.

Good afternoon, and thank you for joining us today on Jushi's second quarter 2024 earnings conference call. My name is Trent Wolovec, and I am the chief strategy director at Jushi Holdings, Inc. With me on today's call are Jim Cassioppo, our chairman and chief executive officer, John Barrick, our president, and Michelle Moser, 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.jushiko.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.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 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. 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 SEDAR, 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. Jushi expressly disclaims any obligation to update this forward-looking information. I will now turn the call over to Jim.

Thank you, Trent, 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 quarter. I will then turn the call over to Michelle to review our financial results in further detail before opening the question and answer period. Beginning with our financial performance, our focus on improvement has delivered strong results this quarter. Thanks to the diligent efforts across our organization, we continue to report an increase in margins with gross profit of $32.6 million for the second quarter of 2024, representing a gross profit margin of 50.4%. In line with this continued margin expansion, adjusted EBITDA has grown to $14.5 million with a 22.4% adjusted EBITDA margin. The sequential increase in margin is largely a result of the increasing verticality in our business, backed by significant growth in Virginia and the comprehensive enhancements made to our grower process facilities to improve product quality, diversify our product offerings, increase output, and reduce costs, especially in Virginia and Pennsylvania. Our revenue base remains strong at $64.6 million for Q2 2024, compared with $66.4 million in Q2 2023. Despite continued market price compression and increased competition, retail revenue has remained relatively stable at $57 million, compared to $59.6 million in Q2 2023. and was achieved with a footprint of 35 operating dispensaries across seven states at the end of the quarter compared to 34 at the end of Q2 2023. Wholesale revenue improved year over year to $7.6 million compared to $6.8 million in Q2 2023. as ongoing improvements at our grower process facilities have enabled us to broaden our product range while enhancing our competitive edge in terms of quality, cost, and distribution. The continued commercialization of our new cultivars at our grower process facilities has helped to increase the grams per square foot we can produce and helped to improve our potency. As these new genetics rolled out and as we developed more manufactured products, we added 308 unique SKUs to our total available assortment across our five vertical markets during the second quarter. This included the full product offering rollout of the lab and tasteology brands in Nevada, as well as new high-dose tasteology trucks and the introduction of the lab 2-gram vape carts in Pennsylvania. Our own brands continue to perform extremely well, and as we expand our lineup to reach more customers across the consumer spectrum, our juicy brand and product sales grew to approximately 56% of our total revenue across the company's five vertical markets for the quarter, compared to approximately 47% in Q2 2023. I will now highlight key state-specific performances over the second quarter. Virginia remains a standout state for us, with significant growth across several metrics. Wholesale sales increased 8% sequentially compared with Q1 2024, and 59% compared to Q2 2023, driven by the introduction of new SKUs, including the latest tasteology flavors, as well as the consistent availability of in-house concentrates. With the steady introduction of new SKUs, Jushi branded sales are strong in Virginia at 72% of total net retail sales. Sales have been supported by an overall increase in the patient count outside of our retail HSA. We believe this external to HSA2 patient count has grown by over 100% since last quarter due to the growth of our delivery business to the external HSAs. We now offer delivery to Fredericksburg, Spotsylvania, King George, and Colonial Beach and anticipate in the third quarter that we can add an additional two delivery days to expand our offerings. Looking ahead, we believe certain regulatory changes will have future positive impacts, such as product shelf life expanding to 12 months as opposed to six months, which became effective July 1st. This longer shelf life will allow larger product loans, which should enhance productivity. In addition, we expect the HSA-1 vertical license to be awarded shortly. The new license holder can operate six dispensaries significantly in advance of completing the build-out of a grower processor facility. This mismatch of timing should allow us to significantly increase our wholesale sales out of our cultivation facility in Manassas. We plan to expand our grower processor operations through a small capital expenditure project to add canopy and new products in the existing warehouse to meet this expected wholesale demand while allowing for growth of our own retail and delivery business. We are also looking to increase efficiencies and service levels at our retail stores over the next several quarters. Turning to Pennsylvania. The ongoing implementation of efficiency measures at the grower processor facility is having positive impacts, with third-party tested potency up 53% in Q1 2024 compared to Q1 2023, and yields up 62% over the same period. These quality and output improvements are driving margin growth in the state. At the retail store level, we are identifying individualized strategies to enhance our competitive position and have increased Jushi's branded sales to 50% of net sales. We also plan to reopen our 18th store in Pennsylvania in Q1 of 2025 while exploring the possibility of relocating another store or two in 2025. Let's turn to Ohio, an incredibly exciting state for us, where we just officially kicked off non-medical cannabis sales beginning August 6th. We view Ohio as a pivotal growth market and are thrilled to have successfully reached this major milestone in alignment with our strategic expansion plans. Our existing Cincinnati store has been awarded a license to become a co-located medical and non-medical dispensary, and we began non-medical Canada sales there this week. We have identified a second dispensary location in Springdale that could be open as soon as Q1 2025. Lastly, over the last six months, we implemented a business development plan to acquire six more stores or licenses to open stores. Although no acquisitions have occurred to date, we hope to consistently open these stores over the next 12 months. We will announce these acquisitions as they occur. On the grow processor side, we have a two-part plan to support the expected demand for products as adult use sales begin. In the short term, we plan to modestly increase capacity at our current grow processor facility with minimal capital investment. We have also put into place a long-term plan to build out 15,000 square feet of new cultivation space in a new warehouse. We own the grower processor facility debt-free. We continue to evaluate competitive financing options, preferably from a commercial bank or other lending institutions. We are incredibly excited about the tremendous opportunities in Ohio, which we believe will significantly increase company sales in an early adult use market. If we do open seven more stores in Ohio, we will have increased our overall store count by 20% just with these Ohio openings. In terms of expectations, we believe the average store sales in Ohio should be above the overall juicy average because of their co-located medical and adult use nature, which differs from most of our stores, which are medical in nature. In addition, we expect our state-level margins to be above average for the company, given that this will be an early adult use market with a vertical footprint. In Massachusetts, our retail business remained strong, while wholesale was lower than anticipated due to oversupply at certain competitors' grower processor facilities. This impacted both volume and pricing towards the end of the second quarter. Quarter to date, units sold have increased by 2% in the commonwealth, as our flower offerings from High Chinks and Sachet's Chai Grind continue to perform well. Over the third quarter, we expect to launch a number of new products across various formats in Massachusetts, and in June, we began harvesting 21 new genetics. Lastly, our turnaround in Nevada has begun. After the turnaround in Pennsylvania and ramp-up of Virginia, senior management has turned its focus to the underperforming Nevada business. Enhancement efforts are currently underway at our cultivation facility, which will result in the implementation of industry standard equipment and processes to drastically improve the quality of our product. We have implemented a plan to support retail sell-through of this new, lower-cost and higher-quality, juicy brand of products, which should expand our margins. We recently had success with the rollout of our tasteology gummies. Turning to our financial position, over the past 12 months, we have executed on our stated goal to deleverage our balance sheet and reduce our debt level. And subsequent to the second quarter end, in July 2024, we refinanced our Sunstream Bancorp Inc. first lien debt with a $48.5 million term loan with new lenders at an interest rate of 12.25% and an original issue discount of 2%. and reduced leverage by using $4.3 million of cash on hand. This refinancing reduced the size of the first lien debt, which peaked at $65 million. Before the refinancing, we had previously reduced our principal debt by $23.9 million, which brings a total reduction since July 1st of 2023 of $28.2 million. This has brought our debt subject to scheduled repayment down to approximately $180 million. We have no maturities until 2026. At year end, we had concluded that absent a refinancing, we would not be able to meet our obligations, and there was a substantial doubt about our ability to continue as a going concern. With the financing complete and our approved liquidity, You will see in our Form 10Q that we have concluded that substantial doubt no longer exists. Looking at the state-specific regulatory front in Pennsylvania, lawmakers are actively engaged in discussions regarding the establishment of an adult use market. We believe there is growing momentum and support among legislators to prevent the state from losing substantial amounts of tax revenue and many thousands of job opportunities to neighboring states, all of which are now adult use or about to legalize adult use. In July, Pennsylvania enacted a law that decouples state taxes from Section 280E of the federal tax code. This will be reflected in our financial statements during the third quarter. Based upon our first half of 2024 results, we estimate that the annual tax savings will be approximately $2.4 million. In addition, we will have a one-time benefit of $1.5 million related to the release of the liability for uncertain tax positions for the state. In Virginia, we continue to advocate for a safe and regulated adult use market, which we maintain is the best solution to combat and challenge the rampant illicit market that we believe continues to be a threat to public health and safety. While Governor Youngkin's decision earlier this year was disappointing, we remain optimistic that an adult use market will eventually be established, and many in the industry are organizing a push for recreational in 2026. With that, I will now ask Michelle to review our financial results before we open the call to questions.