Jushi Hldgs Inc Cl B

Good day and welcome to the Jushi Holdings fourth quarter and full year 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad, and to withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Trent Wolovec, Chief Strategy Director. Please go ahead.

Good afternoon and thank you for joining us today on JUCHY's fourth quarter and full year 2024 earnings conference call. My name is Trent Wolovec and I am the Chief Strategy Director at JUCHY Holdings, Inc. With me on today's call are Jim Cassioppo, our Chairman and Chief Executive Officer John Baric, our President and Chief Revenue Officer, 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.jushico.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 the detailed reconciliation of GAAP and non-GAAP results, which can be accessed from the investor relations section of the company's website at ir.jushiko.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 related to our financial conditions, 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 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 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 during the fourth quarter and full year of 2024, following which I will discuss recent operational achievements and developments. 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 results, revenue for the fourth quarter of 2024 was $65.9 million as compared to $67.8 million in Q4 2023. Gross profit for the quarter was $25.4 million or 39% of revenue compared to $27.2 million or 40% of revenue in the fourth quarter of 2023. The modest decline in revenue was driven by continued price competition across our footprint. Gross profit was affected by higher per unit production costs as we address efficiency challenges at our grower processors in Pennsylvania and Massachusetts in the third and fourth quarters. Continued pricing pressure and increased holiday promotional activity also contributed to the impact on gross profit margins. Net loss was $12.5 million compared to $18 million in Q4 of 2023, and adjusted EBITDA was $8 million compared to $11.3 million for Q4 of 2023. We had a record quarter in terms of operating cash flows of $7.2 million. The fourth quarter undoubtedly presented its share of challenges for the consumer, and like many other retail businesses, we continue to feel the effects of reduced consumer spending on non-discretionary items. However, our strategic vision remains firmly in place, and we are confident in both our capabilities and solid fundamentals to navigate these conditions as we prepare for future growth and the potential for favorable regulatory advancements. Turning to our annual results, full year 2024 revenue was $257.5 million compared to $269.4 million in 2023. Annual gross profit increased by $2.1 million to $118.3 million compared with $116.2 million in 2023, largely due to increased private label sell-through in all our vertical markets and enhanced growth processor performance driven by our efficiency optimization initiatives. Adjusted EBITDA for the year increased by $5.4 million to $46.2 million compared with $40.8 million in 2023. Very importantly, these initiatives led to significant improvements in our cash flows from operations, achieving growth of 59% to $7.2 million in Q4 2024, compared with $4.5 million in Q4 2023. This improvement was also seen on an annual basis as we generated $21.6 million in cash flows from operations, an extraordinary improvement from the $3.3 million outflow in 2023. In the first three quarters of the year, our use of cash was focused on debt reduction. As we entered the fourth quarter, our priorities shifted toward growth-oriented capital expenditure and strategic M&A to increase our operational base and execute our 7-in-7 retail store strategy. As part of our seven and seven strategy, we've successfully acquired or opened five new dispensaries since the beginning of Q4 with dispensaries located in Linwood, Pennsylvania, Oxford, Toledo, and Warren, Ohio, and Peoria, Illinois. And I plan to open three more before the end of the third quarter. The dispensary in Warren, Ohio is not currently Jushi-owned, but operates under a management service agreement under the Beyond Hello name and is subject to a purchase agreement, which we expect to close upon later this year, subject to regulatory approvals. With the opening of 14 store locations anticipated by mid-2026, we are on track to expand our retail footprint by 40% since the end of Q3 2024. We are currently focused on securing locations in Illinois, New Jersey, Ohio, and Pennsylvania. We are also planning to move four underperforming retail locations by mid-year 2026. Over time, this retail store activity is expected to boost both top-line revenue as well as profitability, while enhancing our buying power to deliver even greater value to our patients and customers. It also positions us to optimize wholesale operations and minimize the risk of capital tied in growth processor as the market becomes more competitive. I'd now like to provide an update on our core footprint. Virginia continues to be our most profitable market with steady growth across both retail and wholesale channels. Year over year, retail and wholesale revenue in Virginia increased by just over 20%, driven largely by the opening of our Woodbridge location in 2023. On an annual basis, wholesale revenue grew by 48%, while retail expanded by 22%. We are taking a phased approach to scaling operations to remain in line with anticipated regulatory changes and market demand. We are about to activate our six-flower room while working towards turning on two additional flowering rooms by the end of the year. Additionally, we are adding hydrocarbon extraction, and we have expanded our CO2 capacity in this past quarter to support increased production. Virginia, our wholesale relationship with Verano continues to grow as they expand into the market, and we are eagerly awaiting the retail store openings by AIR with its recent HSA1 provisional license. We continue to expect in the short term, AIR will focus on the retail market rather than building out large-scale cultivation, and we look forward to supporting them and their patients in HSA1. Our delivery business in Virginia continues to thrive in both our HSA2 and out of HSA2 offerings, with consistent growth in total unique patients, orders, sales, and basket size. Our total delivery offering grew by 20.3% sequentially from Q3 to Q4, with gross margin percent expanding by 700 basis points. In Pennsylvania, we are currently in the design phase for a multi-phase canopy expansion that presents an opportunity to increase our canopy square footage by approximately 50%. We are beginning to act on this plan and will speed up the pace if adult youth legislation is signed into law. To support the canopy growth, we are expanding and refining our trimming, drying, and curing process, which will also enhance efficiency and quality. We have expanded extraction capabilities by adding hydrocarbon extraction capacity to further support growth of our concentrates offering. At the retail level, we opened our 18th Beyond Hello store in Linwood, Pennsylvania on February 25th, and we plan to move two underperforming locations in the state. Lastly, in Ohio, we're thrilled with the results from our first harvest in the newest room at our cultivation facility with over 100 grams per square foot for the room. We're particularly excited about the performance of our first run of new genetics across the expanded space in Ohio as the initial results have been excellent. Our continued success with high-quality, high-testing product enables us to maintain strong margins by selling finished goods not only through our own retail channels, but also into the wholesale market. To improve efficiency and reduce both labor and hardware costs, we are working with a tobacco-based vape company to implement a new filling machine and hardware, enabling us to achieve significant cost savings without compromising quality. Additionally, we are exploring, expanding, and adding to our extraction technology to enhance capacity, efficiency, and product quality. We continue to grow our retail presence in the Ohio market. During the fourth quarter, we entered into management services agreements for two operating dispensaries in Oxford and Toledo, Ohio. These agreements allowed us to manage operations while we worked through the regulatory approval process. Subsequent to year-end, following the receipt of all necessary regulatory approvals, we successfully closed on the acquisition of both dispensaries. In February 2025, we opened our fourth Ohio retail location in Warren, Ohio, and we expect our fifth location in Mansfield, Ohio, in the second quarter of 2025. both operating under a management service agreement until regulatory approval to transfer the license is received. On the product and brand front, we continue to roll out new and high-margin SKUs, which are proving to be increasingly popular with our customers and patients. Over the fourth quarter, we launched 415 new unique SKUs, marking a 9% sequential increase and nearly 50% year-over-year. Sachet, our value flower brand, continues to be a standout performer with 189 new SKUs launched in the fourth quarter. The Lab Concentrates brand closely follows with 136 new SKUs introduced. Just recently, on Valentine's Day, we launched our latest flower brand in Virginia, Flower Foundry. we saw this new brand jump to our number one sales SKU in the Virginia market within just three days. This was a massive success for our team, and we are incredibly excited to introduce this new premium flower brand into other markets in the near future. In three of our markets, Virginia, Nevada, and Ohio, we believe we have successfully increased flower quality to be amongst the highest in the state. Moving ahead to the balance sheet, in 2024, we improved our cash flows from operations from 2023 by approximately $25 million and paid down $18.4 million of debt. We further strengthened our balance sheet recently by growing our cash balance with cash received from both the IRS and the third party in connection with our ERC refund claims. To date, we have received approximately $1.4 million from the IRS, with majority received in 2025. We also received approximately $5.1 million of proceeds in the first quarter of 2025, a connection with the factoring of certain ERC refund claims. In addition, we recently raised approximately $4.6 million of additional cash by issuing some additional 12% second lien notes due 2026. I was among the investors who purchased additional second lien notes, demonstrating my commitment and belief in the long-term success of the company. We believe these capital infusions will enable us to continue to comfortably execute our retail expansion strategy and support investments and enhancements across our growth process or footprint, particularly allowing us to expand canopy space in Pennsylvania and Virginia in anticipation of potential adult use legalization. We believe this strategic expansion will position us for sustained growth in these key markets as regulatory developments unfold. We will continue to remain focused on the sale of non-core assets to generate additional cash. We expect them to generate approximately $3 million in net proceeds if and when we receive regulatory approval of a deal signed in 2024. We also have another $3 to $5 million of ERC claims inclusive of interest that we are looking at turning into cash. On the regulatory front, in Pennsylvania, there has been some progress around potential adult use legalization. Notably, co-sponsorship in both the House and Senate underscores the bipartisan, bicameral support for this initiative. We were pleased to see that Governor Shapiro included cannabis in his budget proposal for 2025-26, which, if passed by the legislature, would legalize adult use effective July 1, 2025, with legal sales beginning on January 1, 2026. While the timing and specifics of regulatory change remain uncertain, adult use legalization would significantly grow the market, creating new growth opportunities for us across the state, and importantly, expand access for patients and consumers. In Virginia, the legislature has passed bills to legalize recreational cannabis sales, sending the proposal to Governor Glenn Youngkin's desk for the second year in a row. Although he will likely veto the bill, the political momentum in the state is real, and there is an election for a new governor that will happen this year as Glenn Youngkin is termed out. We look forward to working with a new governor that respects the will of the voters. At the federal level, President Trump continues to shape his cabinet and focus on his key priorities in office. We anticipate more clarity on any federal regulatory process in the coming months. With our strong presence and history in the medical cannabis program in Pennsylvania and Virginia, we believe that we are uniquely positioned to capitalize on a more favorable state regulatory landscape in the largest parts of our business. As the tone and positions of key federal leaders evolve and cannabis becomes more normalized, we anticipate being a significant beneficiary of any potential federal changes. With that, I will now ask Michelle to review our financial results before we open the call to questions.

Thank you, Jim, and good afternoon, everyone. I'll provide more color on our fourth quarter results. Revenue for the fourth quarter was $65.9 million as compared to $67.8 million in the prior year. The modest year-over-year decrease was largely due to retail sales declines in Illinois, Massachusetts, Nevada, and Pennsylvania due to increased market competition and pricing pressure. The decreases in our retail channel were partially offset by sales growth in Virginia due to ongoing improvements in product quality and availability as well as the launch of non-medical sales in Ohio. Wholesale revenue was $7.7 million in the fourth quarter of 2024, compared to $8.9 million in the comparable quarter. The decrease was primarily attributable to the declines in Massachusetts and Pennsylvania due to continued pricing pressures and operational challenges that led to a delay in getting products to the market as we prioritized supplying our retail stores. These declines were partially offset by growth in Virginia and Ohio driven by higher output at the cultivation and processing facilities, which benefited from ongoing enhancements. Gross profit was $25.4 million, or 38.6 of revenue, compared to $27.2 million, or 40.2% of revenue in Q4 2023. The decline in gross profit margin year-over-year was driven by higher per-unit product costs as we continue to address efficiency challenges at the cultivation and processing facilities in Pennsylvania and Massachusetts. Continued pricing pressure across our footprint, as well as increased promotional activity around the holidays, also contributed to lower gross profit margin for the fourth quarter, both sequentially and year over year. Jushi branded product sales as a percentage of total revenue improved to 55% across the company's five vertical markets compared to 53% in Q4 2023. Operating expenses for the fourth quarter were $27.2 million compared to $33.8 million in last year's fourth quarter. The decrease was primarily due to the prior year including impairment charges related to goodwill and intangible assets partially offset by higher depreciation amortization expense driven by the amortization of our business licenses which commenced during the second quarter of 2024. Through a series of cost optimization initiatives and enhanced operational efficiencies, we continue to successfully reduce our net loss. For the fourth quarter of 2024, our net loss was $12.5 million compared to $18 million in the prior year, an improvement of $5.5 million, or 31% year-over-year. From an annual standpoint, our net loss was reduced by $16.3 million year-over-year to $48.8 million. Adjusted EBITDA was $8 million compared to $11.3 million in the fourth quarter of 2023. Full-year adjusted EBITDA was $46.2 million compared to $40.8 million in the prior year. Turning to the balance sheet. As of December 31st, the company had approximately $21.3 million of cash and cash equivalents. During the year ended December 31st, 2024, we paid $4.7 million in capital expenditures. As we consider capital expenditures for 2025, we expect maintenance CapEx to be approximately $3 to $5 million. We further expect growth capex in the range of $5 to $10 million, which will be dependent on the regulatory environment and market conditions. As of December 31, 2024, we had $180 million of principal amount of total debt subject to repayment, excluding the $21.5 million related to the promissory notes issued to San Martino that remain in dispute. and excluding leases and property plant equipment financing obligations. As Jim mentioned earlier, we had no improvements in cash flows from operations. Cash flows from operations grew by 59% to $7.2 million in Q4 2024, compared to $4.5 million in the prior year's quarter. Annually, cash flows from operations grew to $21.6 million compared to a use of cash of $3.3 million in the prior year. Following quarter end, we further strengthened our balance sheet by factoring a portion of our employee retention credit refund claims, resulting in cash received of $5.1 million. To date, we have received $1.4 million from the IRS for the ERC refund claims and related interest. We have approximately $3 million of additional ERC refund claims remaining with the IRS, which were not sold as part of the factoring transaction. We expect to receive interest on both the factored claims and those claims we have retained. We issued approximately 5.1 million aggregate principal amount of our second lien notes for cash proceeds of $4.6 million. The notes are due in 2026, and we plan to use this capital infusion to further strengthen our capital structure and position our platform for future growth. And with that, I'll now turn the call back to Jim for concluding remarks.

Thank you, Michelle. As we move into 2025, we are incredibly pleased with the progress we have made, particularly in executing our initial phase of our 7 and 7 strategy, maintaining a strong leadership position in Virginia and achieving early success in the Ohio adult use market. Since we announced the 7 to 7 initiative in Q4 of 2024, we have acquired two operating stores in Ohio, in Toledo and Oxford, and we have opened stores in Peoria, Illinois, Warren, Ohio, and Linwood, Pennsylvania. We expect to open stores in Mansfield, Ohio, Parma, Ohio, and Little Ferry, New Jersey in the coming months. This puts us on pace to have eight new stores open by the end of the third quarter of 2025 if the regulatory process runs smoothly. We have a Springdale, Ohio store under development that should be open by year end, and we are well down the road on a second New Jersey opportunity. In addition, we are working on developing a pipeline of additional store openings in Ohio, Pennsylvania, Illinois, and New Jersey to keep us on pace to meet our goal of opening 14 storefronts by mid-2026, a 40% growth in our retail store presence since the third quarter of 2024. In addition, we are in the process of moving four underperforming existing retail locations to stronger locations. We are also investing in some marketing programs to increase customer traffic to help grow the top line. On the grow processor side, we have recently increased our canopy in Ohio and Virginia and expect to do more of this in the coming months in these states and in Pennsylvania. We are also investing in some equipment to efficiently increase output in all five of our grow processors. I want to extend my sincere thanks to our exceptional team for their dedication and hard work as we look forward to a promising 2025 of building a next generation cannabis platform. Thank you for your continued support and we look forward to sharing more updates soon. Operator, please open the call to questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. To answer your question, please press star then two. Today's first question comes from Pablo Zwanek with Zwanek & Associates. Please go ahead.

Thank you. Jim, I mean, of course, we're also following very closely what's happening in Pennsylvania and Virginia. But first, in the case of Pennsylvania, you know, what's different this time around? I mean, last year, the governor also put it in the budget, also spoke in favor, and we had a bill that had bipartisan support from both chambers. And this year is the same thing. So I want to understand what is it that is different this time that gives you more confidence that it will get done. In the case of Virginia, you know, in a best-case scenario, let's say a Democrat wins the election for governor, how soon could that bill be approved and by when could you start sales in a best-case scenario recreational in Virginia? Thank you.

Hi, Pablo. Thanks for the question. So, you know, in Pennsylvania, you know, we're very close to the political process. Last year, the governor was focused on doing some things differently. But more importantly, it was an election year. And so he was giving a lot of lip service, which I think he admits that was more lip service to cannabis versus putting energy. And the political season... As you know, Pennsylvania was very much known to be the swing state and was the swing state. So it was a difficult year to get legislation that requires bipartisan support. They were kind of shooting each other to try to get an advantage. So when the budget came together, Shapiro was part of the equation for vice president, a leader in the Democratic Party, and running a swing state. and they were holding up the budget to try and make him look bad, as far as I could tell. It wasn't good for Pennsylvanians, and there were good politicians there, so they all decided, and he engineered a last-minute deal overnight just to get the whole budget behind about a month late, a month after it should have been. So I think it had to do with Politics and it being an election year and it being a swing state. Not only an election year, but the presidential election year. This year, it's a different equation for another reason. It's called money. So there's a $49 or $50 billion budget in Pennsylvania. It's a $49 point something billion dollar budget in Pennsylvania. That's the state budget. There currently is a $3 billion budget deficit. And there's $8 billion sort of a reserve fund. And if you think about the way this works, it's a June to June budget, June 30 to June 30 budget. That number of $8 billion, I believe, was at the end of the year or so, and the reserve fund. And there's inflationary increases in things like government worker pay and other things that they pay out. If it's just 2.5%, that's another billion-dollar deficit, right? Two and a half of $50 billion is about a billion more deficit if they don't raise any taxes. So that means there's a $4 billion deficit that would then cause the reserve fund to be done in two years. States can't run into deficit. That's not legal the way all states work. And so it's really the end of the line for them to be running these big deficits. noting that we're in an expansionary economy, not a recessionary economy, and we're due for a recession in the next few years. It could be this year, it could be next year, but things will get worse because revenues go down. So I think there's understanding on both the political spectrum, Republicans and Democrats, of this mathematical equation, and there's not a lot of good ways to raise revenues other than cannabis and one or two other things. and as we all know, people like to continue spending. They don't like to have to do big cuts, and to my knowledge, no big discussions of cuts in Pennsylvania. So that's a math of how that works in Pennsylvania, and there has been more political activity this year. We're involved in the process. I'm not going to go into details. I'm headed to Pennsylvania next week. There's a bunch of stuff going on, so it feels different this year. It doesn't feel like an election that doesn't feel like, you know, sort of swinging for the fences. It feels like a big discussion going on, and, yeah, people want some things, and it's a very close bipartisan state, but they need this, and all the states around them now are definitely, including Ohio, which is not last year, adult use. So that's Pennsylvania. In Virginia... In Virginia, the governor likely vetoes this. That would be a big surprise if he doesn't veto it. If he doesn't veto it, it begins, I think, May 1st of next year. And he could just sit around and get into law. He doesn't have to sign it. But I'm surprised he hasn't vetoed it yet, quite frankly, based on some of the things he said. But so... In the case of Jushi, which is, I think, by far the best pure play in either Pennsylvania or Virginia, given the scale of our company and the scale of those two states to our footprint and revenues, Virginia being our most profitable state and Pennsylvania being our largest state. And so there's an election, an off-year election in November for governor. There's a woman named Abigail Spanberger running for the Democrats. She's former CIA. She's a House representative, Democrat, and very, very oppressive candidate. She's up by 15 percentage points in the latest poll. The Republican that is talked about as the lead is the lieutenant governor. And we will do our best to make cannabis a political issue. It polls very, very well, by the way, both Pennsylvania and Virginia, into the 60s in terms of popularity. in swing districts in Pennsylvania, in swing districts in Pennsylvania. And in Virginia, it's very popular. So, you know, and the time is ready. So when I look at Jushi, you know, I look at, you know, there's a very good case that, you know, adult use happens in 26, early 26 in Pennsylvania. And I cannot imagine it takes longer than late 26, mid 26, or even early 27 for Pennsylvania. I would be shocked if it's in Pennsylvania I'm talking about. In Pennsylvania, I'd be shocked if it's later than sometime in early 27. But to me, it's more likely in early part of 26. In Virginia, I'd be very surprised if it doesn't happen by early 27th. So when you look at the risk-reward in Jushi, the cash flow dynamics, we have a huge part of our company flipping to REC, I think, in the next couple years.

That's great. That's very helpful, Jim. Great call there. One last one. In terms of the states where you want to open stores, you mentioned Pennsylvania. Makes sense. Ohio makes sense. New Jersey, maybe a bit more competitive. Illinois, very competitive. We're seeing a lot of social equity stores. So Do you want to rank the priorities of those four states? I mean, from my point of view, it would be Pennsylvania and Ohio. New Jersey and Illinois seem very competitive. And maybe, you know, you hit air today. I think they're trying to sell their stores there. I'm surprised that you're trying to expand stores in New Jersey and Illinois when maybe you have better opportunities in Ohio and Pennsylvania. Thanks. That's all.

Well, I mean, clearly, if you look at what we've done, Ohio's been our priority, and obviously we opened a store in Pennsylvania. So those have been our two priorities based on what we've done. And I would answer that question by saying there's a limit. We can only do eight in Ohio. And I'm the biggest shareholder and one of the biggest debt holders of the company, so I'm going to look at these things very, very closely. And I would... I would caution one company's experience versus another company's experience. I've come across private companies that have opened 10 dispensaries. We've looked at their books. They have some great dispensaries that they opened up, some great dispensaries. And they've opened 10 up. Now, you know, so if you look at a large company who might be focused on a huge state, let's say like Florida, and, you know, Illinois is a sideshow, and they have no experience in Illinois, you could see how that could happen. In our case, we have a great business in Illinois. Illinois, boy, it's a cash cow state for us. Yeah, we lost the Missouri business in Sauget, but it's a great state for us. We're very experienced in the state. We have employees, great employees in the state, a state director there. regional management, all that stuff's in place, plus a very good Beyond Hello website with traffic and customers. So it's a whole different equation. And so I ran a hedge fund for 25 years, so I think I know how to do risk. I've done some bad stores. I don't plan to do it again. And so that's how to answer that question. New Jersey, again, it depends. Those are effectively ones that we are getting licenses, not buying licenses. And we think we are in communities where that are ring-fenced effectively. They're not doing a lot of them, you know, and we're not doing, and we talked about one and down the road on another. So it's not like we're opening 10 or anything like that. Right now, no current, you know, close deals in Illinois, and we talked about New Jersey. So we think we know what we're doing, and I agree with you about Ohio being the, and that's what we've shown, and Pennsylvania being the two things we're really focused on.

Got it. Thank you.

Thank you. And as a reminder, if you'd like to ask a question, please press star then 1. We'll pause for just a moment to assemble our roster. And that concludes our question and answer session. I'd like to turn it back over to the management team for any final remarks.

Thanks. We appreciate everybody attending the call, and we'll chat with you in May. Bye-bye.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.