Jushi Holdings Inc.
Q3 2021 Earnings Call Transcript

Published: 17 Nov 2021

[Operator:]

Good morning. My name is Lakanya , and I will be your conference operator today. At this time, I would like to welcome everyone to Jushi’s Third Quarter 2021 Earnings Conference Call. Today's call is being recorded. I would now like to turn the call over to Michael Perlman, Executive Vice President of Investor Relations. Thank you, sir. Please go ahead.

[Michael Perlman:]

Good morning. Thank you for joining us today for Jushi Holdings' Inc. third quarter 2021 earnings conference call. Joining me on today's call are Jim Cacioppo, Chief Executive Officer, Chairman and Founder; and Ed Kremer, Chief Financial Officer. This morning we issued a press release announcing our third quarter 2021 financial results. The press release along with the presentation that accompanies this call are available on our website under the Investor Relations section and are filed on SEDAR. Before we begin, I would like to remind listeners that certain matters discussed in today's presentation or answers that may be given to questions asked could constitute forward-looking statements within the meaning of Canadian and United States Securities laws, which by their nature involve estimates, projections, plans, goals, forecasts, and assumptions. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect actual results are detailed in Jushi's annual information form and other periodic filings and registration statements. These documents may be accessed via the SEDAR database. These forward-looking statements speak only as of the date of this call and should not be relied upon as predictions of future events. With that, I would now like to turn the call over to Jim Cacioppo, Chief Executive Officer, Jim?

[Jim Cacioppo:]

Thank you, Michael. And thank you everyone for joining our call today. Let’s begin on slide two. This morning, I would like to take a few minutes to provide an update on our third quarter performance and highlight the progress we have made across the organization along with our operational achievement. I’ll then turn it over to Ed, our newly appointed Chief Financial Officer to review our financials. We’ll then review what sets Jushi apart from our peers and our outlook, and lastly, open it up to questions. I'll now begin by reviewing our third quarter results on slide three. I'm pleased to report that our revenue increased by 13% to $54 million in the third quarter of 2021, as compared to the second quarter of 2021 and 117% on a year-over-year basis. On a sequential basis, our revenue growth was driven primarily by higher sales at our BEYOND/HELLO stores in Pennsylvania, Illinois and Virginia, and increase operating activity at our grower-processor facilities in Pennsylvania and Virginia. Additionally, the Nature's Remedy of Massachusetts acquisition, which closed on September 10, contributed approximately three weeks of revenue during the third quarter. For the third quarter of 2021, Adjusted EBITDA was $6.4 million, and increased 38.5% over the second quarter of 2021 and 124.9% year-over-year. We opened four stores in the Q3 2021, including the acquisition of two Nature’s Remedy stores in Massachusetts, and have opened a total of 11 stores year-to-date as of today. As compared to the prior year, adjusted EBITDA increased by 124.9%, driven by significantly higher revenue and gross profit. Our quarter was on target for revenues and I want to thank our team of hardworking Jushi employees for what they do every day. I would now like to highlight the progress we have made across the organization, along with our operational achievements beginning on slide four. Over the course of the company's history, we have proven that our disciplined M&A strategy is working, having strategically expanded our footprint nationwide in several high growth, limited license markets, and what I believe to be industry leading acquisition multiples, and this continued into 2021. We have been slow to expand through M&A in the past 18 months compared to some of our peers. Our high growth asset profile, combined with a low company valuation creates a high bar for acquisitions as we seek to avoid unnecessary shareholder dilution. In the third quarter of 2021, we are extremely proud to have successfully completed three acquisitions and announced the signing of another; first, the completion of the Nature's Remedy acquisition marked our official entry into the Massachusetts market, the seventh state in Jushi’s expanding national footprint and our third vertically integrated state at the time of the announcement. With Nature's Remedy, Jushi adds two retail dispensaries in Tyngsborough and Millbury and a 50,000 square foot cultivation and manufacturing facility in Lakeville, Massachusetts. The Lakeville facilities flower canopy encompasses approximately 26,000 square feet, which Nature's Remedy expects to expand to approximately 33,000 square feet by the end of November. Nature's Remedy is also evaluating further expansion opportunities in the existing Lakeville industrial complex, as well as on the 10 acres of land owned by Nature's Remedy in Grafton, Massachusetts. We acquired this asset at very attractive multiples of 2.7 to three times Nature's Remedy’s 2022 EBITDA. We also plan to expand our retail presence in Massachusetts rapidly maturing adult-use market by acquiring one additional adult-use store under the state three store cap. Second, we signed a definitive agreement to acquire an entity operating an adult-use and medical retail dispensary under the name Apothecarium in Las Vegas, Nevada. The Apothecarium acquisition together with the April 2021 purchase of Franklin Bioscience, Nevada LLC, a holder of medical and adult use cannabis cultivation, processing, and distribution licenses will enable Jushi to become vertically integrated in Nevada, which will provide margin uplift, as well as providing significant brand exposure producing high quality product lines including the Bank, the Lab, Tasteology and Seche. This will be Jushi’s fourth vertically integrated state accompanying Pennsylvania by the way of its affiliated subsidiaries, Virginia and Massachusetts. And third, we significantly increased a presence in the Ohio market with the acquisition of a licensed cultivator. And by completing the previously announced acquisition of a licensed medical cannabis processor. The acquisition of a cultivator or processor is a significant step forward in our plan to scale up footprint and vertically integrate in Ohio. We also plan on acquiring up to five new retail dispensaries in Ohio under the state’s five store cap, either through applications or through acquisitions. This morning, we are also very excited to announce that we have entered a definitive agreement to acquire NuLeaf, a Nevada-based vertically integrated operator for total consideration of upto $62.5 billion. NuLeaf currently operates two high performing adult-use and medical dispensaries in Las Vegas, Nevada and Lake Tahoe, Nevada, in addition to a 20,000 square foot cultivation facility in Sparks, Nevada, as well as a 13,000 square foot processing facility in Reno, Nevada. Additionally, NuLeaf owns a third licensed retail dispensary located directly on Las Vegas Boulevard, expected to become operational in early 2022, subject to regulatory approval and other conditions. Upon completion of the acquisition of NuLeaf and the previously announced Apothecarium Nevada acquisition Jushi will grow its retail presence to four dispensaries with the potential to significantly increase our presence in the Nevada retail and wholesale markets. This period of rapid growth is only just getting started here at Jushi. With a robust M&A pipeline, we are confident it is the right time to further strengthen our liquidity to continue this momentum. Subsequent to a quarter end, we entered into $100 million senior secured credit facility. We're what we're referring to as an acquisition facility from SunStream Bancorp, a joint venture sponsored by Sundial Growers Inc. Now I'd like to specifically highlight our operational achievements during the third quarter. Let's begin with retail on slide five. In Pennsylvania, we opened our 14th and 15th BEYOND/HELLO dispensaries in the third quarter. Coinciding with the store openings we saw increased sales driven by improved inventory level, a broader selection of products in store, targeted promotional activity, and an increase in membership in our loyalty program. During the third quarter, we hosted and participated in several events, ranging from educational pop up events, to community events, focused on reference and health related causes. We also increased our engagement with the local Chamber of Commerce's and are organizing an average of five to seven events a month. Subsequent to the third quarter, we opened our 16th BEYOND/HELLO dispensary, and have planned to open our 17th and 18th BEYOND/HELLO locations in Pennsylvania before year end. In Illinois, our four existing BEYOND/HELLO stores continue to perform well. Additionally, our partner Northern Cardinal Ventures was awarded a conditional retail dispensary license via the state's lottery process in the third quarter. Pending regulatory approvals, the new store which is designated for the Peoria Bureau of Labor Statistics region will become the fifth BEYOND/HELLO location in Illinois. During the quarter, we also organized and supported several local community events including, and run for epilepsy and expanded our partnership with a laundry project, which assists lower income families with meeting basic needs, including washing clothes and linens. Also, Jushi continues to host and participate in local educational pop up events and non-profit outreach and -- and Bloomington Normal communities. We are also pursuing five additional retail licenses in Illinois that will increase our retail footprint to the state cap of 10 and plan to apply four or acquire three craft grow licenses to support a growing retail footprint. Moving on to Virginia, sprint to the quarter end; we opened our second store in Virginia just seven miles from the Dulles International Airport and 30 miles from Washington DC. The new store feature 17 point of sale systems, 70 on-site parking spots, and a separate delivery service area. We expect to open at least three and maybe a fourth additional dispensary in 2022 in high density locations like Alexandria, Arlington and Fairfax. New locations are expected to be freestanding buildings that range from 7500 to 10,000 square feet features 20 or more point of sale stations, offer drive through access, 50 plus parking spots and have a separate delivery vault supported by separate delivery space to capitalize on Virginia's delivery potential. We recently closed on a phenomenal piece of real estate in Arlington that we expect to be a great store, and it's a short five minute walk to two metro stations and within a 10 minute drive from about 280,000 people with an average income of $155,000 per annum. The current plans for this onto location include 42, parking spaces, and 25 POS systems, nine of which will be dedicated to express pickups. Let's turn to slide six. I'm very encouraged by the steady growth in our store fronts over the past year. In the third quarter, our store counts increased by four, including the two stores we acquired through the Nature's Remedy acquisition. At the end of the third quarter, we operated 24 stores up from 10 in the prior year. Subsequent to the quarter end, we opened two new stores and now operate 26 retail stores across five markets. Before year-end, we expect to add an additional two locations in Pennsylvania and operate a total of 28 stores across five markets and the licensed footprint of 39 licenses, including the recently announced Nevada deals. By the end of 2022, we are targeting a total of approximately 50 store licenses or more across seven markets to be added through applications and acquisitions. I would now like to provide an update on our expansion efforts and our grower-processor facilities in Pennsylvania and Virginia on slide seven. Let's start with Pennsylvania. At our grower-processor facility in Scranton, we continue to make good progress on the redesign of build out of the facility and remain on track to complete phase 1 of the expansion by the end of the first quarter of 2022, and begin to generate revenue in Q2. The initial improvements we have made to the facility have resulted in improved yield and quality. As previously discussed, phase 1 of the build out which has recently been refined will increase total square feet of the facility from 81,000 square feet to approximately 123,000 square feet, increase canopy for approximately 18,000 square feet to approximately 44,000 square feet and increase annual biomass capacity from approximately 10,000 pounds to 25,000 pounds. Phase 2 of the expansion is expected to be completed by the end of the fourth quarter of 2022 and will increase the total square footage of the facility to an upward revive 210,000 square feet increase canopy to approximately 100,000 square feet and increase annual biomass capacity to approximately 67,000 pounds. Furthermore, we have added many parcels of land to the footprint and are close to being able to expand to over 350,000 square feet pending regulatory developments. In Virginia, we launched a series of cannabis brands and products in the Commonwealth, beginning with the debut of our brand, The Lab in the form of point five gram and point three gram vaporizable, cartridges and Tasteology in the form of edibles and infused products. In September, we were thrilled to have received Virginia Board of Pharmacy approval to sell smokable flower, which allows us to expand patient access to our full suite of products. We have already begun to see the positive impact that flower sales have on a medical program on the launch of September and we have seen strong momentum in the fourth quarter. However, the flower rollout Q3 and Q4 is slower than expected due to regulatory bureaucracy. At our vertically integrated facility in Manassas, we continue to move forward with phase 1 of the build out of the 93,000 square foot facility remain on target to have 19,000 square feet of canopy and an annual production capacity of 12,000 pounds of biomass that will come to market by the end of the second quarter of 2022, or early Q3 as the construction ends at the end of Q1 and the growth cycles begin in Q2. As previously reported, the company is also in the design phase of constructing a second connected on site building that will also be built out in two phases. Phase 2 is expected at approximately 100,000 square feet, 35,000 square feet of canopy at 23,000 pounds of annual biomass capacity of approximately 195,000 square feet, approximately 54,000 square feet of canopy and approximately 35,000 pounds of annual biomass capacity. We expect to be able to complete phase 2 by the end of the first quarter of 2023 and begin the planting cycle in Q2 of 2023. Phase 3 would add another approximately 70,000 square feet to the facility, 69,000 square feet of canopy and 45,000 pounds of the annual biomass capacity for approximately 265,000 square feet 123,000 square feet of canopy and 80,000 pounds of annual file mass capacity. Before we dive into our financial results, I'd first like to sincerely thank Kim Bambach for her countless contributions to Jushi. We are extremely grateful for her service and wish her the best luck in our future endeavors. Kim will remain with the company through December to ensure continued smooth transition. I'd now like to introduce Ed Kremer, our newly appointed Chief Financial Officer who assumed his role subsequent to the end of the third quarter. Ed’s career includes nearly 25 years of financial growth restructuring, executive leadership experience, and sales and marketing at high growth start-ups of publicly traded companies in the technology, fashion, manufacturing, wholesale distribution, licensing and retail environments. Most recently Ed served as Chief Operating & Restructuring Officer of Le Tote and Lord & Taylor, where he oversaw the organization's M&A and restructuring efforts during the global COVID-19 pandemic. Prior to his time at Le Tote and Lord & Taylor, he held a number of executive leadership and finance roles with public and private equity backed leading consumer products companies, most notably Oakley, Oliver Peoples, Beats Electronics, better known as Beats by Dr. Dre, Noon Home and 360fly. We are thrilled to have Ed join the team. I will now pass the call over to him to discuss our financial results for the third quarter before we discuss our 2021 outlook. Ed?

[Ed Kremer:]

Thank you, Jim. And good morning, everyone. Before we dive into the financials, I would like to take a minute to say that I'm incredibly pleased to join Jushi at this pivotal stage in its growth trajectory. I truly believe the cannabis industry is in the first inning of tremendous growth that lies ahead and upon meeting Jim and the rest of the executive team it was clearly apparent to me that Jushi is at the forefront to execute on that growth trajectory. I look forward to working with this highly experienced and disciplined team to execute on the company's strategic and financial priorities. Before getting started, I'd like to remind everyone that the results that we'll be going over today can be found in are soon to be filed financial statements and MD&A and all are stated in U.S. dollars. Let's begin on slide eight. Revenue in the third quarter 2021 increased 13% to $54 million compared to $48 million in the second quarter of 2021 and increased 117% from $25 million in the third quarter of 2020. The increase in revenue on a sequential quarterly basis was driven primarily by solid growth with the company's BEYOND/HELLO stores in Pennsylvania, Illinois, and Virginia, and a modest contribution from the recent acquisition of the two Natures Remedy stores in Massachusetts. As Jim mentioned earlier, while our wholesale business continues to ramp up, it represented less than 10% of our overall revenue per quarter. The year-over-year increase in revenue was primarily driven by the build out and expansion of the company's retail store base expanding from 10 to 24 and a modest expansion of our wholesale business driven by an increase in inventory, availability through our expanded cultivation manufacturing facilities in both Pennsylvania and Virginia and the addition of the Nature's Remedy Lakeville facility. Our gross profit was $24 million for the third quarter of 2021, an increase of 100% from $12 million in the third quarter of 2020. Gross profit margin was 45.3%, compared with 49.2% in the prior year third quarter. Excluding fair value adjustments in our biological assets gross margin percentage declined a modest 110 basis points versus the third quarter in the prior year. The increase in gross profit was primarily driven by the increase in revenue, partially offset by increased promotional activity focused on growing the percentage mix of private brand products and our growing loyalty program membership. SG&A expenses in the third quarter 2021 was $24.3 million, or 45% of revenue, a $600,000 decrease as compared to the $24.9 million, or 52% of revenue in the second quarter, excluding a onetime severance payment in the second quarter of 2021 operating costs increased $1 million sequentially, and $13 million or 106% as compared to the prior year third quarter, demonstrating operating leverage as we scaled the business. SG&A expense was driven primarily by an increase in headcount to support new store openings, and increase in activity at our cultivation and manufacturing facilities and the size and scope of general administrative functions. Provision for income taxes in the third quarter of 2021 was $8.9 million, compared to $6.1 million in the prior quarter, and $1.8 million in the year ago period. The increase in income tax expense was mostly due to an increase in gross profits subject to duty tax treatment, higher state income tax and return to provision adjustment. Third quarter net income was $38 million, or $0.22 per basic share with a net loss per diluted share of $0.08, compared to net income of $5 million or $0.03 per basic share and a net loss of $0.08 per diluted share in the second quarter of 2021. The $33 million improvement in net income in the third quarter as compared to the second quarter of 2021 was primarily driven by the gain on fair value derivative liabilities of $55 million. The net loss of $0.08 per diluted share in the third quarter was due to the dilutive effects of the derivative warrants as accounted for under IFRS. As compared to the prior year, net income increased $68 million from the third quarter of 2020, driven by an increase in fair value gains and derivative warrants, revenue and gross profit. Adjusted EBITDA in the third quarter of 2021 increased 38.5% to $6.4 million compared to adjusted EBITDA of $4.6 million in the second quarter of 2021 and increased by $3.5 million or 125% as compared to the prior year. More information regarding Company's use of non-IFRS financial measures can be found in the Company's management discussion analysis for the three and nine month period ended September 30 2021. Turning to the balance sheet, we ended the quarter with $59 million of cash and short term investments and total current assets of $139 million and current liabilities of $79 million. Inventory and biological assets increased to $65.2 million from $28.5 million in the prior quarter, primarily due to the acquisition of Nature's Remedy and the build-up of inventory in our grower-processor facilities in Pennsylvania and Virginia in anticipation of Q4 sales. The Company incurred $15 million in cash capital expenditures during the quarter and $56 million year-to-date. We expect to incur an additional $35 million to $40 million in the fourth quarter of 2021, subject to margin conditions and regulatory changes, of which a portion will be funded by an existing financing arrangement. As of September 30 2021, the company had $102 million principal amount of total debt, excluding leases and property, plant and equipment financing obligations. As of September 30 2021, the total of shares outstanding were approximately $182 million and including all diluted share equivalents worth $264 million, respectively. As previously disclosed, on August 9, the company announced that all issued and outstanding super voting shares and multiple voting shares of Jushi were converted into subordinate voting shares in accordance with the terms of the super voting, shares and multiple voting shares. The outstanding warrants to acquire super voting shares and multiple voting shares were also converted into warrants to acquire subordinate voting shares, without any amendment to the other terms. Following these conversions, there are no super voting shares and multiple voting shares issued and outstanding. As previously announced on October 20, Jushi closed on $100 million senior secured credit facility from a portfolio company of SunStream Bancorp, a joint venture sponsored by Sundial Growers Inc. After being drawn, loans issued under the facility will bear an interest rate of 9.5% per annum, payable quarterly, and will mature five years from the closing date. Subsequent to quarter end, the Company had drawn down $40 million from the acquisition facility to fund the cash portion of the recently completed acquisition of Nature's Remedy, $60 million in capacity remains on the acquisition facility, and Jushi has the ability to increase the total commitment by an incremental amount of up to $25 million. As of October 31 2021, the Company had approximately $94 million in cash and short term investments on the balance sheet, not including $16.4 million final arbitration award and a previously announced dispute and approximately $142 million principal amount of total debt, excluding lease and property, plant and equipment financing obligations. At this time, I would like to turn the call back over to Jim. Thank you.

[Jim Cacioppo:]

Thank you, Ed. I would like to conclude the call today by highlighting a few points on slide 10, that we believe kept Jushi apart from our peers, and then review our outlook. First, we expect to lead the industry on organic revenue and adjusted EBITDA growth over the next several years, as we continue to build out on licenses and expand our cultivation and manufacturing operations. This organic leading growth rate will be further enhanced by accretive M&A transactions. If you look at slide 11, you can see we should have revenue CAGR of 242% from 2019 through 2022, which included very few revenue and cash flow acquisitions. Second, we believe Jushi operates one of if not the most concentrated portfolio of assets and limited license states with favorable regulatory developments, namely Pennsylvania, Virginia, Ohio, and additional opportunities to expand in Illinois, when more licenses are finally issued. Further, we expect approximately 55% to 60% of our 2022 projected revenue to come from states that are on the verge of a flip to adult-use in the next year or two. And any related sales inflection is not included in our outlook, as they would likely be in 2023. Third, our M&A track record is second to none based on the quality of assets we have acquired and the multiples we have paid for these assets. We have included slide 12 that takes you through our biggest and best M&A transactions since inception. But I would like to take a minute to highlight a few of the transactions. In Pennsylvania, we acquired 18 stores for $80 million. Most recently, we have seen other MSOs routinely paying up to $120 million for three retail locations. In Virginia, we paid $33 million for what we believe is the best license in cannabis in the state and maybe the country. And in Illinois, we paid $12.5 million for four high performing stores that generate approximately $75 million to $80 million in annual revenue. As large MSOs complete their footprint, Jushi will experience less and less competition for deals as we experienced in Massachusetts. Shows of Jushi get an experienced well-oiled M&A team led by me that serves only one client, Jushi shareholders. If you look at slide 13, you will see we have much less willingness to offer shares than our other tier two MSOs. In the past two years, we have issued approximately one third of the shares of the average of what company one and company two have issued over the past three years. They are quicker roll up of single state operators strategy may be a good one as they seek to capture the premium valuation that goes along with being among the largest cap and most liquid stocks and complete more acquisitions before federal legalization. Our strategy, however, is a different and a slower strategy that has the advantage of pursuing only the most strategic and accretive transactions. Our low valuation in the out years of 2023 and 24 as our major markets go to adult-use, causes us to have a very high bar for acquisitions to fit into the Jushi valuations and growth metrics. Jushi’s strategy has the added benefit reducing operational risk of integrating many assets at the same time. And eventually, we will have less competition for deals as largest MSOs has substantially built out footprints. Our M&A skills combined with our concentrated footprint gives us plenty of runway to enhance our leading organic growth with accretive acquisitions that should enhance shareholder returns. We believe this will allow Jushi to generate the best alpha in the cannabis industry, and over time as our ability to do accretive deals on top of high internal growth rates may capture a premium valuation. We plan to do lower cost licensed bolt-on acquisitions in Illinois and Ohio in 2022, which should be very accretive to shareholder value. Four, moving to slide 14, our industry leading online platform continues to drive a best-in-class customer experience and represents approximately 80% of our total sales. We also reported two $1 million online sales days in October and $1 million online sales day in November, and have seen conversion rates of nearly 14%, which stands well above the 3% e-commerce industry benchmarks. We also expect to build up one of the industry's best delivery services in HS-2 in Northern Virginia. Fifth, as illustrated on slide 15, we have a strong management team that was recently enhanced by several executives that adds value every day to Jushi’s shareholders and leads a very dedicated and diverse team of over 1200 motivated, hardworking employees that are focused on our mission to increase access to safe, effective and affordable cannabis products. And six, on slide 16, Jushi is committed to continuing to adopt industry leading ESG standards, beginning with our focus on applying environmentally sustainable practices throughout our organization. Specifically, we are focused on limiting the environmental impact of our retail stores, and the construction required to continue building out our cultivation and processing capabilities. A great example of this is our Culver City, California BEYOND/HELLO location, which is expected to achieve a full remediation of the former gas stations environmental damage which was previously located there. Additionally, our environmental sustainability efforts during the build out the dispensary includes zero waste construction, as well as being California Title 24 Energy Compliant. The dispensary is also designed with low e-glazing energy efficient class, tier storey walls, and will have a locally sourced sculpture garden and solar power vehicle charging stations. We also strongly committed to increasing the use of organic packaging materials across our six best-in-class brands. Next, we are actively working to both support and build a diverse workforce for Jushi ensuring that our team is representative of the communities in which we serve. Our commitment to equal opportunity and employee engagement is demonstrated through our receipt of the best companies’ group award for best cannabis companies to work for dispensary award for two consecutive years, among others. Giving back to our communities is core to our company's culture. Each month Jushi hosts and participates in various community and charitable events in the regions in which we operate. And lastly, we have compiled a strong group of diverse directors with refreshed and unique perspective to ensure Jushi maintains the highest level of governance standards. We believe, our current board diversity profile will comply with the diversity requirements that the major stock exchanges have or will adopt. And in line with our commitment to strong governance, we simplified our capitalization table by eliminating our multi-class voting structure. This is also a crucial step for a successful uplifting to a major U.S. exchange by attracting institutional ownership as some avoid super voting structures in younger and very dynamic industry like cannabis. Looking ahead to the remainder of the year, we expect to open an additional two BEYOND/HELLO dispensaries for a total of four in Q4 and continue to build out our Pennsylvania and Virginia grower-processor facilities, which will increase our margins and substantially grow our wholesale sales in 2022 and beyond. The four new Q4 stores will increase our store base by 17% in Q4. We are revising our full year 2021 revenue guidance range to $205 million to $215 million, and our 2021 adjusted EBITDA guidance range to $21 million to $25 million. The reduction in revenue and adjusted EBITDA guidance was mostly due to our lower fourth quarter estimates driven by delays in new store openings due to unforeseen regulatory approval, timing related delays and some supply chain issues. For example, the Pittsburgh store has been unexpectedly delayed four months by the city's ever changing zoning requirements affecting Q3 and Q4 sales. The slower than expected ramp up of wholesale activity in Massachusetts due to the lack of wholesale operating infrastructure by the previous operator, and or adopting a conservative operating stance as we integrate Nature's Remedy into the Jushi way, mostly affecting Q4. Unexpected regulatory complexities that have impeded our ability to introduce our full suite of flower products in Virginia, both in Q3 and Q4, and delays in signing and closing our acquisitions in the bottom. On the EBITDA side, we've had a larger than expected corporate overhead, as we have ramped up hiring, including at the senior levels to fuel our sales and marketing efforts as well as preparation for our FCC registration. While the pace at which we have been able to open new stores and launch new products in the wholesale market has been slower than we initially anticipated. I am pleased with the progress we have made to date. And I'm encouraged by our industry leading organic growth as we continue to expand our footprint. We are maintaining our guidance for 2022 as most of the store opening issues and our wholesale sales structure and operating changes at Nature's Remedy will be complete by year end or early first quarter. Very importantly, we continue to execute on a grower-processor built out in Pennsylvania, Virginia, which should drive both wholesale sales and approved margins in both markets. We continue to operate on the assumptions that there will be adult-use sales in both Pennsylvania and Virginia, which informs our capital allocation decisions, which includes the pace at which we build out our retail and grow processor assets. In short, we have to take a point of view on when adult-use will come to make the investment decision. And this is our best estimate for these large, impactful regulatory changes. Moving forward, we will continue to make the investments necessary to support new and exciting market entry opportunities and existing and new states in line with evolving cannabis regulations. I could not be more excited for what the future brings as we continue to forge our leadership position in the cannabis industry, all while driving long term value for our shareholders. I look forward to updating you all on our next call. Thank you again for your time. Operator, please open the call for questions.

[Operator:]

Thank you. Our first question is coming from Russell Stanley with Beacon Securities. Please proceed.

[Russell Stanley:]

Good morning and thank you for taking my question. Just on Virginia, following up on your concluding remarks, Jim, understanding the election results from earlier this month. Just wondering what your latest thoughts are, I think at first glance, people viewed the results as being bearish for the opening of the adult-use market. And more recently, the media reports have indicated there may be Republican support for accelerating the opening. Can you give us your thoughts on the net impact? And how you see how you see that rolling out? Thank you.

[Jim Cacioppo:]

Thank you, Russell. Yes, in Virginia, I think the focus of the new governor, and the new politicians that were elected in the legislature, and senate is really focused at this point more on law and order. And we have in Virginia, it being becoming legal to possess and that becomes legal in July, possession becomes legal in July decriminalization effectively. So we believe they want to have a legal market to serve those, and are working with the existing companies, because that's their only choice to allow sales to everyone in Virginia, before the 2024 dependency of adult-use so effectively allowing us to sell. We believe no, that's obviously a work in progress. But that's, that's their focus. They're also focused on jobs in the economy. And, and they're very interested in cannabis. We have people visiting our facilities all the time in the legislatures, because we're very close to the seat of power there. And yes, I mean, we think that it moves along, and adult-use gets brought forward in one way or another, whether it's into 2022, which is the possibility, or the beginning of 2023 or other signs of 23 we'll see. But I would note that we do have this exclusive right to serve the Northern Virginia market. We're building out our facilities, and growing the medical market quite fast. So Virginia is the probably the quickest conversion from a sleepy medical law back in 2019, 20. They added additional stores, they take away THC caps, and it's real now they'd lost local to flower. So it's really moved at a rapid pace more rapid than you saw Pennsylvania. And Pennsylvania was more rapid than Florida. So we have lots of wood to chop in the medical market as well. So I -- we're looking forward to a regulatory change. And we're involved in the process, and we'll see what happens.

[Russell Stanley:]

Excellent, thank you.

[Operator:]

Our next question comes from Bobby Burleson with Canaccord. Please proceed.

[Bobby Burleson:]

Great, thanks. Curious about the timing of the additional stores in Virginia that you are planning on opening in 2022?

[Jim Cacioppo:]

Thanks, Bobby. Yes, so we have right now, we opened our second store in November in Sterling. We expect in Q2ish there's probably -- there's always delays on this stuff, but we're expecting Q2ish, opening up of Fairfax and Alexandria. And then beyond that Q3 -- we because we just bought a site that's a tremendous site is in Arlington, and it's just very big. It has parts that meet Arlington is more of a city, right. But we have 42 parking spots right now in the current design, which is tremendous, as close to -- subway sites, we call them New York subways, they call them the metro or something else in Virginia. And so, five minute walk away from two different ones. So it’s a tremendous site, but it requires a lot of work. So that when we you know, the Q3 Q4 timeframe, we were just getting plans approved.

[Bobby Burleson:]

Okay, great. Thank you.

[Jim Cacioppo:]

And then we have another store. We have another store. We have not identified our site yet. And depending upon what the site looks like, it could even be quicker than the Arlington store. But, I would in my model, put that out there after the Arlington store for conservativeness.

[Bobby Burleson:]

Understood, thanks.

[Operator:]

Our next question comes from Kenric Tyghe with ATB Capital. Please proceed.

[Kenric Tyghe:]

Thank you. Good morning. Jim, just on the topic of Pennsylvania and your plant capacity expansions exiting 2022 are you planning to be sitting on more than 100 square -- 100,000 square feet of canopy, 210,000 square foot facility? You also sort of called out the potential or the opportunity to increase that to an excess of 300,000 square feet. Can you just speak to your supply balance relative to your own footprint, perhaps also the market supply balance or risk of imbalance in the second half of 2022 heading into the expected adult-use flip, and how you would look to mitigate or manage against that dynamic as we sort of get into the back end of 2022?

[Jim Cacioppo:]

Yes. So thanks for the question, Kenric. It's good question. Listen, there's this maximum in the industry, this saying that we have to go big early, though we'd usually like to execute big early to. But go big early in girl processor land in Pennsylvania means having your grows there for when it flips to adult-use. So we and others have added capacity. Now we're in the enviable position of having 18 stores open by the end of the year. So right now, our first expansion, Seche is 123. Our second expansion, we have not made final investment decision on. We're very involved in the process. In Pennsylvania, we believe the market, and we will hear things come in the coming weeks and months, that you'll give us confidence that it is coming in on a timeframe, that final investment decision for this phase two, which takes 295,000 square feet of total warehouse space, that final investment decision, we'll be timed around that and maybe a little bit sooner if we get a little bit more bullish or just because we're just going to get it going because we know a comp. Just because the way the process works, we from construction, we can get that start-up potential sooner than we get the information out of Harrisburg. But having said that, we have a -- we're involved in the process of regulatory change there of educating the politicians, and we were quite optimistic that something's going to happen. And Pennsylvania, unlike states like New Jersey, the infrastructure is ready for adult-use. The license structure is much different, you have major MSOs, we've invested lots of capital in the grower-processor space, and there's many, many stores open, unlike New Jersey, so they don't have to worry about this medical market getting pushed out by adult-use. So that sets up a really nice demand that the market structure is ready for it. And of course, the patients or customers, the citizens of Pennsylvania, I believe are very, very ready for it, and support above it. So we think there's a positive setup that we have to manage that risk of timing that you're talking about. We're good at managing risk. No, we could get a little long update to, to what you're saying about supply. If you look at Illinois, what happened in Illinois when it flipped over, you saw wholesale prices and to some degree retail prices go down as the grower-processors were building our capacity in a small recreational market and in small medical market, excuse me in Illinois. And then in the back half in the first half of that year, which was I think 2019 it flipped over in 2010. And then in the second half of that year, you saw people started to hoard product, because they knew that prices were going to go up and prices were going up and you saw prices actually get back up a little bit. So we don't know what's going to happen to Pennsylvania. But it's natural for us to want to build, to be there for the first two years, which will be the best prices and volumes in the market and serving the citizens and customers of Pennsylvania, doing what we're supposed to be doing with assets, doing what the regulators and the politicians expect us to do. So that's how we manage it. The second, the second piece of that going 350,000 square feet, that will be a further down the line. We have no commitment to that yet, but we're when we have the land to do it, but we're pretty close to having all the lands to do it. But it's just nobody to investors; we can lean into Pennsylvania, if it's there. We have that set up already. We have that optionality set up already. We by no means have made that decision or process of even making that decision. We need more data; we need to see what happens here.

[Kenric Tyghe:]

Great color. Thanks.

[Operator:]

Our next question comes from Jason Zandberg with PI Financial. Please proceed.

[Jason Zandberg:]

Thanks very much. Wanted to ask you about CapEx specifically your -- what the outlook looks like for Q4 and for FY 2022. If you – in terms of total and also just a timeline.

[Jim Cacioppo:]

So the total, I'm going to -- Ed, what's the total of the 40 million?

[Ed Kremer:]

Yes $35 million to $40 million.

[Jim Cacioppo:]

$35 million to $40 million that we put in the transcripts or the press release $35 million to $40 million per quarter. I think that, I personally have to talk into my team. I think that all won't happen in the fourth quarter. I think that's a conservative sort of number we put out there because, inevitably there's, we paste that into the first quarter. That's more like what we think we're spending if we were, if we were doing cash on delivery, effectively. That's how that's calculated, more or less, right. But that's not how the real world works. So the good news from investor standpoint is that the big chunk because we're completing our structures. Virginia, as we laid out, we're starting to plant in the grower room in December, December 29, is a date that my team thinks of when they will be planting in the first additional grower room, and then it just becomes a cycle where we keep planting in those grower rooms. So the capital is really being spent a lot on the first, the fourth quarter and the first quarter. And remembering that we have the upper facility, for we do have the upper facility for Pennsylvania. So that's a sale leaseback facility, we have open amounts that we draw down on that. So that covers a nice big piece of that. And remembering of course, we have 100 millionish cash or $95 million in cash revenues that we disclosed at the end of October. And remembering that we have the best collateral in Virginia, so Virginia is an asset we own it's unlevered. There's been a feeding frenzy of lenders trying to get to us to borrow money from now. But given how much adequate cash we have, almost $100 million on the balance sheet, I'm in no rush to set up a negative carry in an asset. I know, I can finance at decent rates, a single digit or, rates. I I'm in no rush to take down more cash and pay that interest rate until, we decide that we need that capital.

[Jason Zandberg:]

Okay, great. Thanks very much.

[Operator:]

Our next question comes from Andrew Sample with Echelon Capital. Please proceed.

[Andrew Sample:]

Good morning and congrats on the new lease transaction. Just wanted to ask on the reaffirmed guidance for 2022. Could you clarify whether NuLeaf is embedded within that guidance? And if so, does that represent maybe perhaps some sort of tapering on an organic basis?

[Jim Cacioppo:]

Yes, I heard your question Andrew. Thank you. That's a good question. So thank you for your congratulations on the NuLeaf transaction, I'd like to point out that we think there's going to be a quick close there and the Apothecarium transaction. Both of those licenses, it happens were in the two year process of getting people off of the licenses that need to be off of the licenses. And so they have this process that's been long standing at the state. And we were told through regulators and lawyers, that they discussed -- Jushi and then we'd have a quick close. So yes, that was included in the guidance that we gave fully. We thought this transaction might have been five, six weeks ago when you get into the fourth quarter, by the way. So in our range, we thought we'd get part of in the fourth quarter end and the Apothecarium transaction as well. But it's got pushed out a little bit, for sure. Just based upon us not signing the deal, because in cannabis, it feels tough. A lot of due diligence, there's a lot of things you need to account for when you do a transaction documents. So we have numbers in there for NuLeaf. And in fact, we have some other acquisitions that we think we're going to be doing. And as well, we have some LOIs out there are some smaller acquisitions. So yes, it's going to your question about the organic growth rates. I still think we have the leading organic growth rates in the industry. But if you look at Jushi, right, we had bought mostly licenses. I pointed out our M&A credentials, how we've gotten these great deals. The way we've gotten great deals, primarily is buying underdeveloped assets in Pennsylvania, Virginia, and Illinois, where we were opening dispensaries flipping to adult-use in Illinois and when we bought Illinois it was doing 7 million and that was doing like 75 billion or 80 billion of sales. Right. So that's, and then we were opening eight, we had two or three dispensaries open. We're about to open the Pennsylvania when we closed on our first transactions, and now we're up to 18. And that was 15 different licenses that we had when we went public. No under contract. So yes, so we were logged organic growth is to building out that huge structure. So of the licenses. But if you look at organic versus inorganic for next year, again, this year we've opened, 14 will be, and it’ll be like 18 dispensaries or something? Well, I guess last week is 14. So it's like, it will open 14 or 15 different dispensaries by the end of the year, the early first quarter. So those dispensaries are in the ramp up stage. So we get a full year of those next year. Right. So that's one thing on your -- if you do a bridge of what organic looks like, that's a big piece of it. The other big piece is these really massive grow rooms coming online in Virginia, Pennsylvania with a vertical model, right. So yes, so that's, the flip side of that, right. That really starts generating revenue late Q2, early Q3 in a big way. Our margins by -- it turns into an EBITDA margin story next year, right? So if you look at the revenue growth rates, right, the leading organic revenue growth rates I still think those two things are we're opening a bunch more stores, Virginia, we were this acquisition NuLeaf, they're going to open a store that's not open yet. So we have a lot of things that we are doing that's organic in those numbers. But really, on the margin side, that's where you see like tremendous organic growth, right, because we're -- if you look at the margin stories in cannabis, we definitely are a lower margin company, because we have this huge retail footprint, right? And so, but that was Virginia and Pennsylvania we are getting fully vertical and the way the math works, our margins are going to go through the roof there and must look more like the vertically integrated folks, you see. So then when you look at organic growth rates and EBITDA grow that, that would be just tremendous. I'd imagine it's the leading numbers in the industry on the organic basis.

[Andrew Sample:]

Great. Excellent color there, Jim. Thank you very much.

[Operator:]

Our next question comes from Glenn Mattson with Ladenburg Thalmann. Please proceed.

[Glenn Mattson:]

Yes. Hi, thanks for taking the question. Also, congrats on the Nevada. Curious the two deals there. Is that a state that you just are targeting for specific reasons? Or is it that you're able to find the best value there? Like when you think about how to best allocate capital on M&A basis, but then second all. In general, it seems like you're kind of really loaded up the ability to do a lot of acquisitions between $100 million credit facility and the shelf perspective that you filed and everything else. I'm just curious, like, how good is this? Are you signaling that you're going to get a lot more aggressive on the M&A front and just perhaps some color as to what direction you intend to take that effort?

[Jim Cacioppo:]

Thank you for your question. Yes. So in Nevada, we targeted that state. We only do acquisitions where we target the state, we're very selective. As I pointed out in that slide about company one and company two, there's people going out there much quicker. We're very targeted. Nevada is very strategic state, we believe for a number of reasons. We have a grower processor that we had there when we went public that underperforming because it's not vertical. And it's, it's a very vertical market in Nevada. It's unusual market. I think Vegas is always an unusual place what goes on there. But in Kansas is unusual because it's, it's you know, in Pennsylvania, we see the customers wanting a house of brands and they want to come into a dispensary have lots of brands, and California has huge house of brands market, but in Nevada, it's very vertical market. So our grower-processor was underperforming because of that. So very strategic to have that asset now generate EBITDA right, because we're, we're selling it to our own stores, and very strategic market for us because we in it, we know it, we know it well. And we're able to do this roll up with Apothecarium, and NuLeaf that gives us real for stores really, and grower-processor space that's very expandable. If we add more stores and do the vertical model or if we decide to go wholesale. I would point out in their facilities; the product is in Reno that doesn't manufacturing that hydrocarbon we have to be very good at hydrocarbon which allows you to do live resin. So we're super excited. It’s the first acquisition that we had with there's been live resin existing because that's a very expensive build out compared to the other processes you can use for vape cartridges and edibles and for extraction. So we think it's a fantastic strategic deal. I point out, there's a lot of confusion about Nevada. There's 100 only there's a limit of licenses there in Nevada, its 138 right now for retail. So that's -- that’s a nice number. It's not a terrible number there and there's 47 million visitors a year. And as far as I can tell people seem like they go there to have a good time. And so you would think they're buying more than they would have to go into like San Diego or some other tourist market Orlando or something like that. So it seems to me like a great place. It also seems to us, as you establish your brands; it's a nice market to have your brands in, because a whole country is going through there and really the whole world. So it's a really unique and it being a brand centric place where you can show off your brand. So very strategic packet and one that we know well. The M&A strategy going forward, you know, we're not changing, we're not changing our tune at all. We are laying out, we're the one company that tells everybody what we're doing. I don't know. I don’t listen to everybody's calls or read their scripts. But I have a sense that nobody -- I told everybody that this time last year that we get a great deal in Massachusetts. We got a 2.7 to 3 times EBITDA deal in Massachusetts. I had a CEO of a competitor call me up to congratulate and also thanked me for resetting prices in that market, no lines -- the day we announced it. That was a landmark deal, okay. And I signaled that we didn't even have the company identified in Massachusetts, but we just knew that the dynamics were the sellers and buyers, it didn't take a genius to see that just a hell of a lot more sellers. And it was only a couple of . And by the way, Illinois, if you look at Illinois, there's 175 retail licenses being issued, when they figure out the regulatory issues that are slowing it down. And you can actually count the number of people who can buy because there's a 10 cap, we are in the state, which is a huge advantage in a big way with 80 million sale, so we really understand the state. So us getting licenses, we're talking to like 15 different sellers. So we will get licenses there. We are telling people we will get to the cap, we likely have those licenses in hand, depending on regulatory stuff by the end of next year, and hopefully get some stores open next year, probably into 2023 for most of them. But, and then we're going to go vertical with these, with these crack or licenses. We have a point of view that the depth of canopy on each license goes to 14,000 and you could locate those close to one another to get the efficiencies. So having 42,000 square feet of canopy to serve our stores, that’s just tremendous, will drive our margins forward. So I'm telling you what I'm doing there. And, then in Ohio, we have a grower-processor; we think there's plenty of good regulatory news in Ohio, they already that we were putting over 10 applications. We – it’s a half of million dollars of investment for us, because we’ve to identify and pay for real estate. So it's not an easy process, but that turns into a lottery. And then, assuming we only get one or two, we'll buy the others. And we hope to have this good job in the lottery. I think in some states, there are people who were putting more applications in than they should. But we hire we think they've, learned from those. But so, that's a tremendous. I mean, so look at how strategic that is. I know those states well, I'm getting vertical, is I think our M&A strategy is very transparent. And we're out there. Now Trump's adding new states. We take a look around and we look and it's got to fit into Jushi growth metrics. We're very interested in building our own base of assets more or less, including these bolt-on acquisitions on existing states. But if somebody is reasonable, they want to join the Jushi family and get but I think it's going to be a leading stock in the industry, in terms of its growth. Yes, we're willing to talk to that, but they have to, they have to really want to be a part of the Jushi family.

[Glenn Mattson:]

Nice that makes sense. Jim thanks.

[Operator:]

Our next question comes from Aaron Grey with Alliance Global. Please proceed.

[Aaron Grey:]

Good morning, and thanks for the question. So I just want to shift back to Pennsylvania, right? You guys have good amount of stores there, going to get max are going up to 18 soon opened up, talked earlier about your plans for additional cultivation. But just in terms of products on your own shelves versus, brands from peers? How do you think about product mix within your own retail stores? Because certainly having such a breadth of retail stores helps insulate you guys from some pricing pressures. So just curious, as you're in times of maybe more pricing pressure, kind of state, how do you think about putting more of your own brands on your shelves versus having other companies brands? Thank you.

[Jim Cacioppo:]

Yes. So we haven't had the luxury of having a ton of product moved through our retail system because our grower-processor, although it’s 81,000 square feet at the present time, we've been at that -- that's the middle of our expanded warehouse system. So on one side of it, is the expansion we're doing first and the second side of it to phase 2, right. And so we rejigger those operations took a lot of grower rooms down. So we've been actually selling a very low percentage of our own product in our, in our stores compared to the larger MSOs. So in the second quarter, we probably have around 10% of our own product in our shelves going through our own stores. And I would, I would also point out in that 10%, we've bought biomass from third parties to actually fuel some of that to keep our products on the shelf, the margins were better than buying packaged goods, but not nearly as good as growing it yourself. So we bought, we bought biomass from other companies to get those products on the shelves, right, saving some money and getting some margin, but not nearly as much as growing it, I'd point out. And then Q3, we're now our grower efficiency, because we took down a lot of grower rooms to rejigger and all the things we had to do and fix up what was not a well-built building by the predecessor. And, so we're now up to 25% -- 20%, 25% of products in the store. I think most MSOs talk about 35% to 50%. We have a target to get into 35% sooner rather than later. And, and we'll be examining going to 50%. Having the 18 store base in Pennsylvania earlier than a lot of people have built out and having four stores going to 10 in Illinois, which is a huge buyer of an open market, wholesale product, right puts us in a nice position to get our product on the shelves of these people who sell to us. So we're not -- we're known to be a really good partner, but we treat people fairly, and we want to be treated, to be treated fairly. So we feel like, we will have the ability to get product on the shelf. In terms of pricing and Pennsylvania, I've talked about how -- when you head into the rack, don't use environment, people are add capacity. So there will be some pressure throughout the year. We'll just see how that plays out.

[Aaron Grey:]

Thanks for that really helpful color. And I'll jump back in the queue.

[Operator:]

Our next question comes from Pablo Zuanic with Cantor. Please proceed.

[Matthew Baker:]

Hi, this is Matthew Baker on for Pablo. Thank you for taking our question. Yesterday, another operator said the price computation in Pennsylvania was more at the retail level and not so much at wholesale. Do you agree with that assessment? Or can you share more color on that? And then also, is it reasonable to say that in fourth quarter, your Virginia stores would generate more sales per store than your Pennsylvania stores? And if so, what type of difference? Thanks.

[Jim Cacioppo:]

Okay, so in Pennsylvania, thanks Matthew. So in, in Pennsylvania -- Virginia is easier to answer. In Virginia, they're just opening up their huge stores and they're being set up to do I mean, a huge amount of volume. I mean, these stores could do $50 million of volume, the newer stores without having lines. You're talking about 25, 30, 35 POSs and 50, 100, 75 parking spots. And so, I mean, they're just ramping up you keep those statistics are not relevant at the time, so the comparisons not relevant. So in terms of in terms of the Pennsylvania market the people who said that the wholesales aren't experiencing it, believe me, if we're marking our prices down for promotional activity, they will not be in our shelves and they share the pain. That's my comment there.

[Matthew Baker:]

Alright, got it. Thank you for the color.

[Operator:]

Ladies and gentlemen, we have reached the end of the question and answer session. I would like to turn the call back to management for closing comments.

[Jim Cacioppo:]

Thank you for participating in today's conference call. We look forward to keeping you updated on the investment of our business on our next call. Have a great day.

[Operator:]

This concludes today's teleconference. You may disconnect your line at this time and thank you for your participation, and have a great day.