Jushi Hldgs Inc Cl B

Good afternoon. My name is Anthony, and I will be your conference operator today. At this time, I would like to welcome everyone to Jushi's Holdings, Inc.' 's third 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, and please go ahead. Good afternoon, and thank you for joining us today on Jushi's third quarter 2024 earnings conference call. My name is Trent Wolovec. and I am the chief strategy director at GC Holdings Inc. With me on today's call are Jim Cassioppo, our chairman and chief executive officer, John Barrick, our president and chief revenue officer, 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.juchico.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 provide 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 Jushi's 10-K and other periodic filings and registration statements. These documents may be accessed via EDGAR and SADAR, 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'll provide a high-level overview of our financial performance during the third quarter and discuss our operational achievements and developments over the period. I'll then turn the call over to Michelle to review our financial results in further detail before opening the question and answer period. Before I begin my review of our financial performance, I want to discuss the current macroeconomic conditions that have caused us to face some headwinds. During the quarter, we saw a continuing trend of price competition due to many factors currently affecting consumer spending. We are facing a period where many consumers are impacted by affordability challenges due to the higher interest rate environment and inflation, which has been compounded by the uncertainty leading up to the election. Over the past few years, the overall increase in consumer prices, including necessities like food, rent, and energy costs, have been over 20%, and in many cases, incomes have not kept pace with price increases. This affordability issue hits the mid- and lower-income population particularly hard. It can be seen in top and bottom lines of other retail businesses like discount stores, fast food, and apparel. While overall economic conditions have had an impact on our financial performance during the quarter, we believe our strong positioning and strategic footprint will continue to help us as we navigate this landscape and prepare for future growth and positive regulatory development and move past cyclical issues with more normal consumer behavior returning. Revenue for the quarter was $61.6 million as compared to $65.4 million in Q3 of 2023, with a decrease attributable to price compression, increased competition, and some internal production and sales issues. Gross profit for the quarter was $28 million compared to $28.5 million in Q3 2023. Despite the small decrease in gross profit year-over-year, Gross profit margin proved to 45.4% of revenue compared to 43.6% of revenue in Q3 2023. This 180 basis point improvement in margin is largely due to the efficiencies and cost-saving measures we have implemented across our organization, including initiatives such as streamlined packing efforts. Adjusted EBITDA was $10.3 million, an increase of 6.5% compared to $9.7 million for the Q3 2023. While adjusted EBITDA increased relative to the comparable period of 2023, it did decline on a sequential basis compared to Q2 2024. The decline from the second quarter is partially due to the seasonality of the business. repositioning expenses of approximately $700,000 in Ohio and $1.4 million in discounting costs in Virginia due to a regulatory change that I will discuss later in the call and the economics factor cited earlier, but also has to do with some operational missteps on our part in the third quarter. For example, our Pennsylvania and Massachusetts grower processors, for various reasons, were not able to get product to market on a timely basis. resulting in missed sales on the retail and wholesale level. Our commercial group also missed the mark in production planning and on menu and price changes. During the last few months, we have made many management changes to address this, including a change in leadership in commercial and in our Pennsylvania operations. As part of our company-wide efforts to optimize sales and customer satisfaction, we are currently doing a revamp across certain areas of our retail operations. We also have continued with our efficiency drive across the company and have de-layered and will not replace several recent senior managers. The retail revamp and the de-layering of management over the past two quarters should save approximately $3 million per year. The commercial end of the business has become a key focus for both myself and our president and recently appointed chief revenue officer, John Barrick. John and I have taken an expanded hands-on role over the pricing and product decision-making and our streamlining and improving of our production planning process, product promotions and pricing, wholesale sales, and repositioning of the stores. Our goal is to have a best-in-class commercial operation that leverages our strong retail distribution business to support wholesale sales. We will continue to leverage Maya and John's trading skills to optimize sales on both the retail and wholesale basis. After quarter end, we completed the refinancing of our first lien credit facility with a small syndicate of lenders, including several new investors to Jushi and two of the founders who have consistently supported the company, me and Dennis Arsenault. In addition, we have begun to see progress on payments from our employee retention credit claims. We have recently received notice that two refund payments from the federal government on our $10 million ERC refund have been approved, and one of those has been received. Although the refunds were small, they represent the first move by the IRS since May of 2023 when we filed 43 refund claims. On the two largest claims, we have an IRS advocate working on our behalf. Additionally, we have $1.6 million of state tax refunds due as of the end of September and a significant portion has been received already in the fourth quarter. We continue to focus on the sale of non-core assets, and subject to regulatory approvals, expect to generate approximately $3 million in proceeds in the first half of 2025. We have been very active in implementing a growth strategy centered around substantially increasing our retail store units. In Ohio, we have one provisional dispensary license that we expect to open in the first half of 2025. Also, we recently signed two definitive agreements for four dispensaries in Ohio, two of which are operating and one of which should be opened in January 2025 and the other in the first half of 2025. With these five stores in Ohio, our Peoria, Illinois store opening on November 8th and the opening of a store in Pennsylvania in the first quarter of 2025, we are on target to add seven new retail stores by the middle of 2025, a 20% increase in our store base. The company also entered into a non-binding LOI to purchase an additional dispensary in Ohio, which could be the company's seventh dispensary in Ohio. The purchase is subject to the execution of a definitive agreement as well as regulatory approval. Including the 7th Ohio store, I have our business development team working on 10 additional retail license opportunities in a drive to create a pipeline to open at least seven additional stores from the back half of 2025 through mid-2026 as a part of our 7-in-7 program. seven new stores by the end of June 2025, followed by seven more new stores by June of 2026. This would increase our current store base by 40% in total. The other locations we are actively working on are in Pennsylvania, Illinois, New Jersey, Maryland, and our eighth and last plant store in Ohio. With this seven and seven program, we are doubling down on Jushi's historic retail first strategy as we are growing our retail business far in excess of our grower processor expansions. The 40% increase in retail outlets will drive revenue and profit growth and should further enhance our purchasing power to allow us to get better deals for our patients and customers. This will also help us optimize trading on the wholesale side of the business while limiting the risk of stranded capital in growth processors when markets turn more competitive. I will now discuss selected state-specific performances in the third quarter. Pennsylvania is showing positive momentum for adult use legislation, with predictions that it may be passed and signed into law as early as Q1 2025. Until adult use markets start, the Pennsylvania market will continue to experience challenges as Pennsylvania is bordered by adult use markets on every side of the state, leading many patients to forego renewing their medical cards. Pennsylvania is a state that experiences a third quarter lull due to travel that coincides with school and other summer vacations. We plan to open our 18th store in Pennsylvania in Q1 of 2025, while exploring the possibility of relocating another store or two in 2025 and 2026. Wholesale and internal retail sales in Pennsylvania were impacted by operational issues due to many days of extreme heat and humidity during the summer months and poor leadership on several levels, which led to a decrease in both yields and potency, which hurt sales and margins in the third quarter. With lower than typical yields, most of our product was going into our own retail stores to meet consumer demand and limited the opportunity for wholesale sales. As weather has cooled down recently, we have seen improvements in yields, which should improve sales and margins throughout this quarter and the first half of 2025. We also enhanced controls and changed commercial personnel and leadership where creativity and adherence to leadership goals was lacking. We also, in the design phase of the canopy expansion in the existing warehouse, that we hope can be quickly implemented once the adult use legislation has been enacted. Next, we are ramping up cultivation in Virginia to support our operations in the state where we have built a strong leadership position in both the retail and wholesale channels. By strategically scaling up cultivation through a phased approach, we can effectively meet growing demand while maintaining the quality and consistency that our patients expect. This will allow us to service the growth we expect with Verano's acquisition of one of the HSAs, along with AIR being awarded the HSA1 provisional license. We expect AIR to open their retail stores prior to getting their GP to scale. We will be there to support the patient growth in that region of the Commonwealth with our products. Virginia continues to be our best growth and our most profitable market. In the third quarter, Our out-of-HSA II delivery business continues to perform well. We view this out-of-HSA service akin to a seventh store in our retail portfolio in Virginia. As a detractor in the quarter, Virginia was likely impacted by summer vacations, especially in our relatively high-income HSA in Northern Virginia. Additionally, the growth in wholesale sales was negatively impacted by the sale of the license from cannabis to Verano as both parties slowed down their activities during the strategic process and change of control of the asset. Growth and profitability were also impacted by the implementation on July 1st of the change in the shelf life of all packaged products from six months to 12 months. Prior to July 1st, 2024, all products were labeled with a six-month expiration. After July 1, 2024, all newly packaged products are labeled with a 12-month expiration date. Virginia operators, including Jushi, discounted product to move the six-month product in Q3 to their own retail system, which reduced wholesale sales and retail margins across the industry. The total impact before accounting for increased unit sales driven by the severe price markdowns was $1.4 million. The concern is that this product, which was not aged, would seem much more aged due to the change from a six-month expiration to a 12-month expiration. These all appear to be seasonal and temporary issues, and Virginia should continue its path as a strong growing medical market. As expected, Ohio emerged as a solid revenue performer during the quarter, demonstrating impressive growth with a 73% increase in year-over-year sales. This was also complemented by an improvement in gross margin, reflecting the effectiveness of our operational efficiencies in the state. This performance in the state underscores a strong opportunity for growth. Because of growth expenses related to acquisitions, facility design and construction, and licensing, as well as unusually large inventory write-downs of $700,000, we did lose money in Ohio in Q3. We expect profitability in Ohio to significantly turn the corner in the coming quarters as we grow retail units, scale the business, and improve our grower processor yields and potencies. Besides quickly opening six additional stores in Ohio, we are in the process of increasing our cultivation capacity by a factor of 2.4 times. This expansion at our grow facility will be fully in place by year end, with new yields rolling out starting in the second quarter of 2025. We will remain a large purchaser of packaged and bulk third-party products in the state, which have been available from several growers. We are in the design phase of a further growing process or expansion, but will not make the final investment decision for about 9 to 12 months. While the issuance of 10 licenses for new retail dispensaries has been slower than expected, We recently have seen issuances for Jushi acquisition targets. As I mentioned earlier, after quarter end, the company entered into two definitive agreements to purchase four assets in Ohio. The agreements are subject to regulatory approvals. We expect to transfer ownership on three of these dispensaries in the first half of 2025, with a fourth transfer of ownership expected in the back half of 2025. We are managing the two operating stores as part of management service agreements, and the others may open under MSAs as well if the regulatory approvals are delayed. I will now discuss additional national highlights for the third quarter. We are expanding our product offering across our footprint, launching 278 new unique SKUs across our vertical footprint in Q3 2024. After quarter end, we launched a new edibles brand called Uncommon Kind, which features high-quality chews crafted with RSO, live resin, or live rosin concentrates. Although we have strong demand for our products, we have recently launched a multi-month effort to improve our concentrate products, both in the hydrocarbon and solventless concentrates, and to reduce costs in all manufacturing areas, including our very popular distillate products. We have begun adding an array of minor cannabinoids and terpenes in our distillate products. We are actively listening to patient and consumer feedback and strive to launch products to market quickly that meet changing consumer preferences. The enhancements of our genetics program is the core focus to increase variety and quality of products, as well as increase our yields and potencies, which should translate to more gross margins. At the beginning of the call, I mentioned that many consumers are facing affordability challenges. As cannabis operates as a cash-only business, the recent expiration of the Farm Bill has created additional obstacles for legally operating companies. Since credit card transactions are not permitted in this cash-only business, many are exploiting the loophole in smoke shops where THCA flour can be purchased with a credit card. This significant issue arises from a lack of enforcement against illicit channels, ultimately undermining the regulated industry and creating an unfair advantage for those operating outside of the law. We are hopeful that this issue will be addressed in the future to support the growth of the legal regulated cannabis industry in the best interests of consumers and operators. With that, I'll now ask Michelle to review our financial results before we open the call to questions.