Jushi Hldgs Inc Cl B

And, you know, I don't know because it's still early in the quarter and, you know, the data we get is lagging. But we do know that yields have gone up and processing is stabilizing. We had multiple issues, you know, related to previous management at a granular level and then above that level, like, you know, not performing, which caused us to get out of whack in the number of units we were producing per quarter. And when you produce just units, each cost per unit is higher. So that came onto our balance sheet at the end of the year and then worked its way off in the first quarter. And so this has been an ongoing issue that we flagged, I think, on our fourth quarter conference call saying that it happened in the third quarter. We think we're on the tail end of fixing it. The two big culprits have been Massachusetts and Pennsylvania. The others are fine. And Massachusetts is, you know, pretty much fixed during this quarter. And Pennsylvania is at good levels and getting better and better and probably has some more work to do in the third quarter as well.

Okay. I appreciate it. Thank you very much.

Yep.

And our next question comes from Frederico Gomes with ATB Capital Markets. Please proceed.

Hi. Thanks for doing my questions. First question, you mentioned the continued competition and price compression impacting retail sales across the footprint. So just curious, what sort of pressure are you seeing specifically in Ohio and how – you know, your new stores in the state are performing so far compared to your expectations? Thanks.

Yeah, thank you. I would say new stores are meeting expectations. But remember, you know, we're operators and we know, you know, we have different expectations maybe than the market because when you open a store, it doesn't have an immediate sort of impact because people have to find out where it is and it sort of builds the customer base. So there's Typically, same-source sales growth for a period of time, which could be, you know, anywhere from 12 to 24 months. That's pretty, you know, pretty dramatic as people figure it out. Ohio is a difficult advertising market, so it's more like a conservative medical market in terms of what you're allowed to do, no billboards, and it's very difficult to let people know that the store is there. So we're actually thrilled at where we stand, and there's more to come. We're opening two more stores. We believe that two of the stores that we're opening up are two of the better locations. They'll be two of our top four or five stores in the state. So we like what we're doing, and we have more to come in Ohio as well. We can open another store. We might move a store. So we got a very good value on four licenses, and with that, you have to open them, potentially move something. And so it's not like we just paid up for a lot of sales. Some others have done that. That's not what we chose. We paid a lot less, but we have to open them up and do the hard work, and that's what we're in the process of doing. But we have not seen price compression in Ohio or Virginia. you know, there's always obviously some promotions and this and that, you know, that's, I'm not counting that, you know, for 20 year end, but generally the prices are pretty, a pretty, a pretty fine and, and margins, you know, are good and, and we're growing sales on a same store sales basis in those two States.

Perfect. Thank you. And then just the second question, I think you mentioned your prepared marks, if you've seen some smaller players, facing difficulties, and I think that could help stabilize supply and demand in some markets. Just curious about any specific markets, specific states where that's happening, and second, how do you think that dynamic is going to play out here? Do you think it's going to be a long process? Do you see anything happening nearer term in terms of rationalization and sort of reducing, I guess, the pace of price compression that we're seeing?

Thank you. The smaller players, I think, and bigger players, I don't think we use that term, smaller players, but that was your implication. But it's both smaller and bigger players, and we've seen it for a couple of years in Massachusetts. I think there was an uptick in the last six months of players turning off their facilities. And so that's one market. And I would note that Massachusetts also has some active legislation that I spoke to to allow for consolidation, you know, on the retail side, which would really change the nature of that market. It's needed. I think it's well supported by local locals. This isn't like a big MSO run sort of legislation. This is people who would like to take part in it one way or another who are, you know, local resident and privately owned businesses, smaller as you put it. In Pennsylvania, there's been a mix of smaller and larger, too. There's been one very well-known private MSO that people talk about. There was one of those last year, a large private MSO that publicly went through a restructuring, publicly meaning there was a lot of press about it. And then the private guys, some of them have struggled in Pennsylvania. And so I'll give you an example. In Pennsylvania, we've had needs to buy both the flour, and we're not seeing high-quality flour. We passed for the most part because we couldn't get the quality level we wanted. So it's not like you go out and just buy what you want. So you do see Pennsylvania sort of stabilize. That doesn't mean everybody's, you know, some people aren't bringing on capacity or taking capacity off some of the bigger players. I don't know. We don't have that kind of visibility. And there's only one large player out there that I would say, you know, that seems to be sort of overproducing as far as I could tell. And we only see one of, you know, quite a few. You know, there's a double-digit number of GPs out there that I would call large. Thank you.

As a reminder, if you do have a question, please press star then one on your telephone keypad. And the next question comes from Pablo Zuanek with Zuanek and Associates. Please proceed.

Jim, can we talk about, you know, the 18 stores you have in Pennsylvania? I'm not talking about REC, but talking about the medical market right now. I think you were doing some relocations. Is that done? Is there work still being done at the store level in terms of refurbishment? Remind us, how do your stores in Pennsylvania average in terms of revenue per store compared to the state average? Just more color in terms of how your retail system is performing in the state on the medical side. Thanks.

Yeah, I think we have a very good retail brand in Pennsylvania that offers a differentiated strategy. It's Beyond Hello is the retail brand that originated actually in Pennsylvania, the brand itself. And we have a very high service level, and we also have a very wide-ranging shelf with a lot of different product on the shelf that's both juicy and third-party, where if you walk into other stores for most of the MSOs, there's not nearly as diverse a selection, and certainly at the price levels that are competitive. So our sell-through of our own product in Pennsylvania is roughly around 50%, and where I think most of the larger MSOs are 65% or more, and maybe close to 75% for some of them, or even higher in one particular case. So we think that we have sort of a differentiator offering on that level. And, you know, it's recognized in the market. We also have a very good online system that's known to be very, very good where, you know, you can go and do a preorder. So I think – and that's a very competitive moat, by the way, is us being early in the state with all these stores because when you type in in Google search, you know, cannabis, you know, beyond Hello and a lot of these locations just pops up because we were kind of early opening a lot of stores. So there's an advantage to that. And then in terms of the shape of our stores, we have done some make things look better and feel better, and we're expanding the vaults for adult use. I know you weren't talking about adult use, but we're expanding and doing some minor remodels for adult use, minor meaning just making it more applicable to take the volume, which helps in medical, too. And then in terms of the relocation, we do have one or two in process. And I would say one is very, very firm, and we're just trying to figure out some details around that about timing and such, if adult use comes or not. So it may create a better opportunity. So we constantly work our store base. We're already doing that in Ohio, too, by the way. So, you know, I think we're one of the operators who works the store base quite hard.

But in terms of numbers, do you think that revenue per store is similar to a state average, or are you over-indexed or under-indexed?

Well, you know, I don't really follow that very closely. So, you know, I can't answer that question.

Okay, that's fine. Thank you. And then just moving on, I mean, obviously we are all hoping for the best regarding Pennsylvania, but are we running out of time, right? If this is tied to the budget, it has to be done by June 30th, right? And here we are, you know, four or five weeks. The Senate is still working on a bill, on agreeing on a bill. Then we have to go back to the House, has to go through a committee. I mean, are we running out of time here? Thanks.

No, we're not running out of time. This is, if anything, we're a bit early, to be honest with you. So the budget doesn't have to be done by June 30th. They'd like it to get done by June 30th. Last year it was done, I think, later in July. And there was a reason why they pushed so hard to get it done in July, because of the Democratic presidential convention. Yeah. And because, you know, Josh Shapiro was being considered for vice president. And so I think that it could go into August, September, even further. And that is kind of under discussion at this point because of some of the stuff going on federally. There might be some block grants. And so there is, you know, I think it's as likely that it happens later, like August, September, than it happens in, let's say, July, which I think is the earliest. So if you get this bill out of the Senate that's bipartisan, which we believe is happening, I don't want to say imminent because we're not that – we know the process, but we're not that close to it because it's caught up in a rulemaking body in the Senate that has to sign off on it. And then you'll have a bill out of each, and then the question is – and they'll be – they're very, very far apart, which is the bad news. But the good news is the governor tweeted out today, you can read his tweet, and he seems to want to be involved. He says he wants to be involved. And, you know, he has very strong political skills. And if he wants to use them here, there's every opportunity to. The state is short. money this year. It's running a large deficit. Those numbers are out there. And by the way, the deficits expect to be much bigger next year unless they do cuts, which is hard to do. And we're also in a growth economy. And I think people are aware that there could be a recession approaching and recession causes tax dollars to go down immediately where your government spending is in place until the next budget cycle. So so it and they have a reserve fund, but they've depleted it to the point where it's at like the bottom, you know, like the you know, where the more conservative people in the state would don't want to go below. They were sort of at that level ish right now. So they really need the revenue. And and this is a easy way to pick up revenue because you're taxing essentially people. transactions that are going on anyway. So said another way is people are crossing state borders to buy in other states when they don't want to get a medical card, number one. And that's probably number two. Number one, they're buying in the illegal market. And the only way to compete with the illegal market, really, the only way to get rid of the illegal market or lessen it is by creating a legal market where people can just walk in and buy a competitive product in terms of quality and price. on the legal market, you know. So I think that that is all very well recognized. Nothing I have said is brave. This is all like how it works, how it is working.

Thank you. Just two more here. So Virginia, again, focusing on the medical market, you know, we have less data now because people don't have to register to be patients. And I guess you don't break down sales by state or you don't tell us how much Virginia grew, but How much better is the medical market in Virginia? I mean, how would you describe it? Or is the volume growth being – and you said pricing is good. So I'm just trying to get a better sense of how good is the Virginia market or how well developed is it. We have less and less data. And then related to that, I think the governor vetoed the idea that delivery could be done to a place other than the house of the buyer, right? I don't know if that was a big deal or not, but you can just give more color in terms of what's happening in the market, in terms of underlying trends.

Thank you, Pablo. I don't think it's less and less data. There's never been a lot of data. We have new patients who sign up every week. We have a significant number of new patients. Now, the question is, because there's not these total patient counts, are there patients that have stagnated and they're not coming back anymore and they dropped out of the market, right? People do move. You know, people might just, you know, have experimented with it or people may be in a different market buying their cannabis or whatever it is. But we are, we consistently sign up new patients and we do track that. And, you know, I don't think it's fair to say that because we don't have the other end of, you know, we don't have a clean number. So it's not right for us to be sharing that, you know, it's kind of one-sided. But we had double-digit percentage revenue growth year over year in Virginia, and that's pretty significant. I don't think that's with new stores because we had opened up our last store at the end of 23 or the third quarter, late third quarter, early fourth quarter of 23, Woodbridge. And so you're seeing same-source sale growth. And in terms of, you know, it's a good business. It's solid margins. We're somewhat product-constrained right there. You know, we can buy product on the third party, but we have grow rooms we're bringing on. We brought on – I mean, this is putting our money where our mouth is. We wouldn't bring on a new grow room if the market isn't expanding. Right. But we have existing capacity in our warehouse of grow rooms that are built but not so to speak. So we brought on a room this month, and we're bringing on – we plan to bring on a room late summer. And hopefully that will get done late summer. They tend to get delayed a little bit. And then we have capabilities to bring on another room after that. And we're also expanding our extraction capacity there. with hydrocarbon. So all that's happening because the market's thriving and growing. And so we feel good about that. And we also have options on third party. I think there's one large, well-capitalized, low-leverage company that pays 280 e-taxes. The only one that pays 280 e-taxes is and their name begins with a G, they seem to have a lot of capacity and we can buy from them. And then on top of that, you know, if we bring our capacity on, you know, we should have some excess capacity. We do like to offer, you know, third-party product to our customers from everybody in the state, but we'll have excess capacity to serve the new stores coming on HSA1, which are new air stores. Um, and, and, you know, it's, it's, it's going to, you know, the air stores may not get there until, you know, late this year or might be get pushed into next year, but they're coming, they're working on it. And, um, and we're supporting that process from a regulatory standpoint, you know, um, um, so, and then in terms of the delivery, um, you know, I would, I would, uh, I would state that, um, I don't want to comment too much, but we don't think this is going to disrupt our operations. Um, And we're very good at managing these processes. This isn't the first regulator or government to disappoint us. It seems to happen all of the time, and we've gotten quite good at this. Some people in the organization have always been quite good at this, but I think I've gotten kind of used to it. It used to worry me more than it worries me now. But I would point out on Virginia that my comments in the prepared section, I'll just reiterate, You know, there's an election this year. The Democrats are ahead by 15 points. The Democrats have passed adult use legislation two years in a row, virtually the same bill two years in a row. And so, you know, I mean, I would kind of be shocked if the Democrat doesn't win in Virginia, because if you look at Virginia politics, that's what happens after a Republican serves. It's primarily a Democratic state. Two of two federal senators are Democrats. It's kind of the way that Virginia is. So we feel really good about that. Not that the Republican won't do anything, but we feel like the Democrat certainly will. And so we're super excited about that, and we're planning our expansion strategy for adult use. But we're not going to act on that, obviously, until we have more data. But if we get the planning behind us and maybe even some of the permitting, that will certainly speed it up and allow us to serve the market sooner.

So one last one, and just on that point, so let's say that things go as we expect on the Virginia front, right? You have a Democratic governor and Democrats controlling the Senate and House Commonwealth. What's the best case scenario in terms of when reg sales would pass? Are we talking July 26th, January 27th? What would be the best case scenario?

I think July of 26th would be the best case. All right. Thank you. Yep. Thank you.

At this time, there are no further questions in the queue, and this does conclude our question and answer session. I would now like to turn the conference back over to Jim Cassioppo for any closing remarks.

Great. Thanks for attending the call. I know it's a busy afternoon in cannabis, and we appreciate you all being on the call. And once again, we always appreciate all of our employees. Thank you very much. Bye-bye.

The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.