JUSHF - Jushi Holdings Inc.
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Q1 2025 Earnings Call
2025-05-08Operator: Good afternoon, my name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Jushi Holdings Inc.'s First Quarter 2025 Earnings Conference Call. As a reminder, today's call is being recorded. I will now turn the call over to Trent Woloveck, Chief Strategy Operator. Thank you, and please go ahead, sir.
Trent Woloveck: Good afternoon, and thank you for joining us today on Jushi's first quarter 2025 earnings conference call. My name is Trent Woloveck, and I am the Chief Strategy Director at Jushi Holdings, Inc. With me on today's call are Jim Cacioppo, our Chairman and Chief Executive Officer; Jon Barack, our President and Chief Revenue Officer; and Michelle Mosier, 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 a detailed reconciliation of GAAP and non-GAAP results, which can be accessed from the Investor Relations section of the company's website at ir.jushico.com. Additionally, we would like to remind you that during this conference call, we will make forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance, and business. Although Jushi believes our estimates and assumptions to be reasonable, they are subject to a number of risks and uncertainties beyond our control and may prove to be inaccurate. We caution you that actual results may differ materially from any future performance suggested in the company's forward-looking 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 SEDAR, as well as the Investor Relations section of our website. These forward-looking statements speak only as of the date of this call and should not be relied upon as predictions of future events. Jushi expressly disclaims any obligation to update this forward-looking information. I will now turn the call over to Jim.
Jim Cacioppo: Thank you, Trent, and thank you, everyone, for joining our call today. Today, I will provide a high-level overview of our financial performance during the first quarter of 2025, followed by a discussion of our recent operational achievements and key 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. Starting with our financial results for the first quarter of 2025, revenue was $63.8 million as compared to $65.9 million in Q4 of 2024 and $65.5 million in Q1 of 2024. Gross profit for the quarter was $25.8 million, or 40% of revenue, compared to $25.4 million, or 39% of revenue in Q4 of 2024, and $32.3 million, or 49% of revenue in Q1 of 2024. The sequential decline in revenue was primarily driven by seasonality. The modest decline in year-over-year revenue was largely a result of continued competition and price compression, which led to increased sales promotions in our retail channel. Gross profit was also affected by higher production costs per unit from prior periods being reflected in the current quarter's cost of sales following the sale of some of these products. Net loss for the first quarter of 2025 was $17 million, compared to $18.4 million in the prior year, and improvement of $1.3 million, or 7% year-over-year. Adjusted EBITDA was $9.8 million, compared to $8 million in Q4 of 2024 and $13.3 million in Q1 of 2024. Operating cash flows were $7.5 million in Q1 of 2025, compared to $7.2 million for Q4 of 2024 and $6.5 million in Q1 of 2024. The increase in cash provided by operating activities, as compared to Q1 2024, was primarily due to factoring certain employee retention credits and an increase in cash flow from working capital. As I shared on our previous earnings call, for the first three quarters of 2024, we focused on utilizing cash for debt reduction. For the last quarter of 2024, and as we entered Q1 of 2025, we shifted towards growth-oriented capital expenditure and strategic M&A to grow our operational base and execute our 7-in-7 retail expansion strategy. Since November of 2024, we have opened six of our first seven planned locations, demonstrating strong execution and momentum for our 7-in-7 expansion efforts. This includes Mansfield, Oxford, Toledo, and Warren in Ohio, Linwood in Pennsylvania, and Peoria in Illinois. The dispensaries in Warren and Mansfield, Ohio, are not currently Jushi-owned, but operated under a management services agreement under the Beyond Hello name, and are subject to a purchase agreement, which we expect to close upon later this year, subject to regulatory approvals. We are incredibly grateful for our team's hard work and dedication in getting the Mansfield dispensary up and running in time for the most significant cannabis holiday of the year, and Ohio's first 420 with adult-use cannabis sales in effect. The grand opening was a success, and we look forward to connecting further with the cannabis community in Mansfield. Our seventh location, which will complete our initial phase of our strategy, will be in Parma, Ohio, and it's expected to open late August or early September. The second phase of our strategy is well underway with two locations identified as Little Ferry and Mount Laurel, New Jersey. These locations will mark our entry into the New Jersey market, a state we view as having significant growth potential, where we plan to further expand our retail footprint. Little Ferry is expected to open in late August or early September, and Mount Laurel in Q4 of 2025. We also have a location in Springdale, Ohio, set to open at the end of September, marking our seventh store in Ohio. These openings are subject to regulatory approval, which is a major variable in the expected timelines. Additionally, we continue to evaluate store relocation and optimization efforts across various markets, with three relocations in the planning stages. These initiatives reflect our ongoing commitment to strengthening our retail presence and maximizing performance across all regions. We continue to trend towards our goal of completing the 7-in-7 strategy and opening 14 stores by mid-2026. This strategic phase of growth will enhance our scale and purchasing leverage to better serve our patients and customers. At the same time, it allows us to optimize our wholesale operations and remain disciplined with capital allocation as competition intensifies across the market. Turning to our grower processor footprint, we continue to make targeted high-return investments at our facilities to meet current demand in key markets, such as Pennsylvania and Virginia, where we are adding canopy and dry room space to both increase biomass volume and quality to better and more profitably serve our patients in these two medical markets. We have recently seen considerable uncertainty among several large and small operators in several of our states, particularly tied to sale-leaseback structures on cultivation and manufacturing facilities. In some cases, this has led to tightening supply. We believe this environment could help stabilize pricing and could present opportunities to capture demand in the marketplace. We are currently in the design phase for additional facility expansions in both Pennsylvania and Virginia specifically to prepare for potential adult-use markets. However, as mentioned on our last call, we will hold off beginning the work until there is greater regulatory clarity and a lower cost of capital for the company. In addition, we can increase the scale of our grower processor in Ohio if we choose to increase verticality if our cost of capital declines. As we mentioned last quarter, across our GP footprint, we recently began working with a tobacco-based vape company to implement new hardware and a filling machine to drive further cost savings. While our initial order was placed earlier this year and it's unlikely to be impacted by tariff implementations, there is the potential that future orders could be impacted. We are ensuring we review all options, including domestic sourcing and utilizing other suppliers that have less exposure to tariffs. Given the vendor change in our current inventory position, we expect the current impact of tariffs to be minimal. With that said, we continue to monitor implications on broader CapEx investments, especially where specialized equipment may fall under new tariff classifications. We don't currently expect other materials, such as packaging, to be impacted by the tariffs. Moving on to our latest brand and product portfolio, we continue to expand our offering with the launch of 391 new high-margin SKUs during the first quarter of 2025. Our sachet and the lab brands have been standout performers, with 129 and 159 newly introduced SKUs, respectively, during the quarter. Our newest brand, Flower Foundry, continues to do extremely well in Virginia and remains one of our most sought-after products in the state. Notably, in Virginia, our retail delivery business in both our HSA2 and out-of-HSA2 offerings continue to contribute to our market success, showing steady growth in total unique patients, orders, sales, and basket size. Additionally, based on our data from a third-party provider, it is estimated that Jushi operates five of the top six performing stores in Virginia by revenue, with all six of our locations ranking in the top 10 in the state. Strengthening our balance sheet remains a key priority to support our strategic expansion plans, and in February of 2025, we executed an agreement to factor certain ERC claims and received $5.1 million in net cash proceeds. We are also entitled to receive a portion of any interest paid on our respective ERC claims through the date of the transaction. During Q1 of 2025, we received $2.2 million in ERC refunds related to the claims we retained, plus approximately $500,000 of interest on both factored and retained claims. We continue to move forward with potential sales of non-core assets to generate additional cash. However, the pace and certainty of these transactions is dependent on regulatory approvals. Upon completion, we expect them to generate approximately $3 million. On the regulatory front, in Pennsylvania, any bill must move through the House and Senate before reaching the Governor's desk for final approval. While there will undoubtedly be competing ideas throughout this process, we remain optimistic, particularly as it is now being coordinated alongside the state budget. Notably, cannabis is being discussed in parallel with regulation of skilled gaming, which like cannabis in its current form within the state, remains both unregulated and untaxed. The alignment could help drive a comprehensive and thoughtful regulatory framework. In Virginia, the gubernatorial race between Democrat Abigail Spanberger and Republican Winsome Earl-Sears is now officially set for November 2025. A recent poll had the Democrat candidate up by 15 points. While the race will continue to develop in the months ahead, we are closely watching the outcome and remain optimistic about what a Democratic victory could mean for the Commonwealth cannabis policy direction moving forward, noting that Democrats have passed adult use legislation two years in a row. At the federal level, we are mindful of the unresolved issues stemming from the Farm Bill loophole that we believe could cause significant harm to the regulated industry. This loophole has not only impacted industry revenue by enabling the sale of unregulated THC products, but has also introduced confusion at both the legislative and regulatory levels, undermining progress toward a unified framework. As such, we are actively exploring litigation channels to address businesses that are exploiting this gap while continuing to advocate for meaningful reform that supports a fair, safe, and well-regulated market. There is active legislation filed in Massachusetts to allow for retail consolidation and modernization of the adult use cannabis program. Nevada remains a sad story as the state has allowed the illicit market, which includes intoxicating hemp products, to run rampant, contributing to an 18% decline since the market's peak. The larger players in Nevada seem too distracted to pursue change. Lastly, as President Trump continues to focus on his key priorities in office, we are closely monitoring the ongoing federal conversation around cannabis, including potential movements on rescheduling, the Safer Banking Act, and broader legislative normalization efforts. We remain confident that we are uniquely positioned to capitalize on a more favorable regulatory landscape as cannabis continues to gain mainstream acceptance as federal policy evolves. With that, I now ask Michelle to review our financial results before we open the call to questions.
Michelle Mosier: Thank you, Jim, and good afternoon, everyone. I will provide more color on our first quarter results. As Jim mentioned, revenue for the first quarter was $63.8 million, as compared to $65.5 million in the prior year. Revenue in our retail channel was $56.8 million, compared to $57.4 million. Overall, unit sales in our retail channel increased year-over-year, however, competitive pricing pressure led to a decline in overall sales dollars. This negative impact of pricing pressure was partially offset by the addition of adult use sales in Ohio, as well as increased sales in Virginia, where pricing was not a factor and we continue to drive sales with ongoing improvements in product quality and availability. Wholesale revenue was $7 million in the first quarter of 2025, compared to $8.1 million in the comparable quarter. The decrease can be primarily attributed to a decline of $1.3 million in Massachusetts due to lower bulk sales, as well as limited availability of products to third parties throughout our wholesale channel, as we prioritize supply of our retail stores. Gross profit was $25.8 million, or 40.4% of revenue, compared to $32.3 million, or 49.4% of revenue in Q1 of 2024, and $25.4 million, or 38.6% in Q4 of 2024. The year-over-year decrease in gross profit and gross profit margin was driven by competitive pricing pressure, resulting in lower sales dollars. In addition, higher production costs per unit from prior periods are being reflected in the current quarter's cost of sales, as products produced in prior quarters turn. Sequentially, there was a slight improvement in gross profit margin, which highlights the progress we made in addressing operational challenges at our grower processing facilities. With ongoing advancements, we anticipate this will further enhance gross profit margin in the coming quarters. Jushi-branded product sales as a percentage of total revenue grew to 56% across the company's five vertical markets, compared to 54% in Q1 of 2024. Operating expenses for the first quarter were $27.6 million, compared to $28.2 million in last year's first quarter. The decrease was primarily due to a reduction in non-cash share-based compensation as a result of higher forfeitures and lower value of share-based compensation granted. Operating expenses were partially offset by higher depreciation and amortization expense due to the amortization of our business licenses, which began in the second quarter of 2024. Included in other income this quarter is $2.8 million related to employee retention refund claims received during the quarter, inclusive of interest. We will be recognizing the refund claims in income as the refunds are paid by the IRS. The net loss for the first quarter of 2025 was $17 million, compared to $18.4 million in the prior year, an improvement of $1.3 million, or 7% year-over-year. Adjusted EBITDA was $9.8 million, compared to $13.3 million in the first quarter of 2024. Sequentially, Q1 2025 adjusted EBITDA grew by $1.8 million, as compared to $8 million in the fourth quarter of 2024. Moving to the balance sheet. As of March 31st, 2025, the company had approximately $27.9 million of cash, cash equivalents, and restricted cash. During the first quarter of 2025, we paid $4 million for capital expenditures. For 2025, we expect maintenance CapEx to be approximately $3 million to $5 million. Growth CapEx is anticipated to be in the range of $7 million to $12 million, which will be dependent on the regulatory environment and market conditions. As of March 31st, 2025, we had $191.2 million of principal amount of total debt subject to repayments, 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. Cash flows from operations were $7.5 million in Q1 2025, compared to $6.5 million in Q1 2024. Cash flow for the quarter was primarily driven by improvements in working capital, which include cash received for our ERC refund claims. As Jim mentioned earlier, we bolstered our balance sheet through the sale of a portion of our employee retention credit claims, generating $5.1 million in net proceeds. We are entitled to receive a portion of any interest paid on our respective ERC claims through the transaction date. For the claims we retained, we received $2.2 million in refunds from the IRS during Q1 2025, along with $500,000 in interest on the retained claims and the factored claims. As of the end of the first quarter, 2025, we had approximately $1.9 million in remaining non-factor claims outstanding. Based on the current interest rates we have received on processed ERC claims, we expect to receive between $1.5 million and $1.9 million in additional interest on the remaining open claims. During the quarter, we also issued approximately $5.1 million aggregate principal amount of second lien notes to related parties for cash proceeds of $4.6 million. The notes mature in 2026, and we intend to use the capital to improve liquidity and fund strategic initiatives that will enhance operational efficiency and long-term growth. And with that, I'll now turn the call back to Jim for concluding remarks.
Jim Cacioppo: Thank you, Michelle. Our 7-in-7 retail expansion strategy remains firmly on track, as do several store relocations. We are very pleased with the successful launch of our first six initial retail locations, with more on the way. We continue to make progress with store expansions and moves in Illinois, Ohio, Pennsylvania, and New Jersey. After too many past miscues, we have a new, primarily homegrown grower processor team that has been put in place late in the fourth quarter of 2024 and throughout the first quarter of 2025. We expect this upgrade in management in conjunction with many high-return capital investments being implemented across our grower processor footprint should yield strong increases in margins in the coming quarters. We are also seeing strong opportunities from our branded product initiatives, with new high-margin SKUs launching across medical, retail, and wholesale channels. None of this would be possible without the continued dedication and hard work of our team, and I want to extend my sincere thanks to everyone across Jushi for their commitment and focus. Thank you all for joining us today and for your continued support. We look forward to sharing more updates in the near future. Operator, please open the call to questions.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] And today's first question comes from Luke Hannan with Canaccord Genuity. Please proceed.
Luke Hannan: Maybe we'll start with Pennsylvania. I mean, you did touch on it in your prepared remarks, what's going on from a legislative perspective. I mean, can you just share what's your expectations, your basic expectations, I guess, if you will? And then secondly, I think I would say something about potentially being able to expand cultivation should the market turn more in your favor. I mean, how quickly would you be able to turn that on in the event that we do get some positive movements when it comes to legalization for an adult use market being set up in Pennsylvania? Thanks.
Jim Cacioppo: Hi. Thanks, Luke. In terms of the Pennsylvania process, there has been a lot of news out today. The governor tweeted that now it's time to find an agreement is the end of his tweet. Now it's time to find an agreement and send a bill to my desk. So what we think is going on is the Republican controlled Senate is working on a bipartisan bill that should come out in the coming days or weeks. It's been a long-term process of them working on it. We believe that bill looks somewhat similar to what was filed last year in the Senate and the House last year. So it's pretty similar to what was filed in both branches. And then you have this bill that was to come out of the House. And if you read through the press, I think you could see for yourself that they're backing off of it and saying, hey, it's a chance to start talking. And they're trying to back off of it because they know it's a very ugly bill that has no chance. It's the dead-on-arrival type thing. And the question is, will the governor be able to bring parties together to cut a deal? That's what it really comes down to. He has been effective in the past, and we hope he uses popularity and his political skills to do such this year.
Luke Hannan: The capacity?
Jim Cacioppo: Yeah, the capacity. So we're working on a capacity expansion now for medical that's in-warehouse. We think we can utilize some of that capacity in medical. And we don't necessarily have to do it all at once in the warehouse. We might do it. We're doing a few rooms to start, and then we'll have some more we can do in-warehouse. So the answer is, we have two stages to adult use. One could be done very quickly, before the program would start. And then the other would be adding to our warehouse. We have plenty of land. And then we would look at the market to see how much of the market we think can be supplied by third parties, whether the capital would be best employed there. Or, for example, in Virginia, where we expect the Democrats to win the election, and that noting that they passed bills two years in a row. So depending upon the capital markets, our cost of capital, we'll have a decision to make, do we do both of those projects to expand for adult use, or do we just favor Virginia? Because we know that Pennsylvania has a pretty good base of grower processors that could bring more capacity on market with existing warehouses of existing license holders, a lot of which are large MSOs.
Luke Hannan: I mean, that's a nice segue into my next question here. So it mentions retail revenue decrease in all states, but Virginia and Ohio are standards. Ohio, I imagine, I mean, you touched on your prepared remarks, the first 20 that they had with an adult use market there. But Virginia, I mean, can you talk about what's going right for you in that state?
Jim Cacioppo: Yeah, Virginia, we noted for the first time we had data by a third party that says that we have five out of the top six stores in the state are Jushi owned stores, and there's 24 stores in the state. And we have all six of our stores are in the top 10. And so basically, it's still an early stage medical market or maybe mid-stage now where there's that same source sales growth. Our stores happen to be competitive with Maryland. And we're making very good margins on a vertical basis. And so, and we're already competitive with Maryland. So we really feel good about that business both in the short term and the longer term, because it's not like we're have these huge prices in an early medical market. We're competitive to an adult use market that our neighbors are HSA.
Luke Hannan: Last one, and then maybe I'll pass the line here. You talked about some of the margin headwinds that you experienced during the quarter because you had higher cost products that was flowing through your P&L. But you now established a better team behind your cultivation. And so in practice, that should lead to higher margins over the long term. When should we expect the margin headwinds associated with some of that higher cost products to roll off during the year?
Jim Cacioppo: Yeah, I mean, they're rolling off in Q2. The question is how much of it. And I don't know, because it's still early in the quarter. And the data we get is lagging. But we do know that yields have gone up and processing is stabilizing. We had multiple issues related to previous management at a granular level and then above that level, like, 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 that 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 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.
Operator: And our next question comes from Frederico Gomez with ATB Capital Markets. Please proceed.
Frederico Gomez: First question, you mentioned the continued competition and price compression impacting retail sales across the footprint. So I'm just curious, what sort of pressure are you seeing specifically in Ohio and how your new stores in the state are performing so far compared to your expectations? Thanks.
Jim Cacioppo: Yeah, thank you. I would say new stores are meeting expectations. But remember, we're operators and we 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-store sales growth for a period of time which could be anywhere from 12 to 24 months. That's pretty dramatic as people figure it out. And Ohio is a difficult advertising market, so it's more like a medical -- 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. There's always, obviously, some promotions and this and that. I'm not counting that. But generally, the prices are pretty fine, and margins are good, and we're growing sales on a same-store sales basis in those two states.
Frederico Gomez: And then just a second question. I think you mentioned in your prepared remarks that 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?
Jim Cacioppo: Yeah, thank you. Yeah, 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 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 on the retail side, which would really change the nature of that market. It's needed. I think it's well supported by 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 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 that went a large private MSO that publicly went through a restructuring, publicly meaning, there's 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 stabilized. That doesn't mean everybody's, 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, that seems to be sort of overproducing as far as I could tell. And we only see one of quite a few. There's a double-digit number of GPs out there that I would call large.
Operator: [Operator Instructions] And the next question comes from Pablo Zuanic with Zuanic & Associates. Please proceed.
Pablo Zuanic: Jim, can we talk about the 18 stores you have in Pennsylvania? I'm not talking about rec, I'm 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.
Jim Cacioppo: 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 products on the shelf. That's both Jushi 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. But so we think that we have sort of a differentiated offering on that level, and it's recognized in the market. We also have a very good online system that's known to be very, very good, where you can go and do a pre-order. 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, cannabis, 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 our, 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, 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 have, we constantly work our store base. We're already doing that in Ohio too, by the way. So I think we're one of the operators who works the store base quite hard.
Pablo Zuanic: But in terms of numbers, do you think that revenue per store is similar to a state average, or are you overindexed or underindexed?
Jim Cacioppo: Well, I don't really follow that very closely. So, I can't answer that question.
Pablo Zuanic: I mean, 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 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.
Jim Cacioppo: 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 Josh Shapiro is 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 there's some of the stuff going on federally. There might be some block grants. And so there is, 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 -- you know the process [Indiscernible] 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 he's a very -- he has very strong political skills. And if he wants to use them here, there's every opportunity too. 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. And they have a reserve fund, but they've depleted it to the point where it's at, like, the bottom -- like the -- where the more conservative people in the state don't want to go below. They're sort of at that level-ish right now. So they really need the revenue. And this is an easy way to pick up revenue because you're taxing, essentially, 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. In fact, probably number two. Number one, they're buying in the illegal market. And the only way to compete with the illegal market, it 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 it. A competitive product in terms of quality and price on the legal market. So I think that that is all very well recognized. Nothing I have said is brave. It's all, this is all, like, how it works, how it is working.
Pablo Zuanic: Just two more here. So Virginia, again, focusing on the medical market. 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 home 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.
Jim Cacioppo: I mean, I don't think it's -- yeah, 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, is, are there patients that have stagnated and they're not coming back anymore and they dropped out of the market, right? People do move. People might just 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 I don't think it's fair to say that because we don't have the other end of -- we don't have a clean number. So it's not right for us to be sharing that. 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, it's a good business. It's solid margins. We're somewhat product-constrained right there. 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. But we have existing capacity in our warehouse of grow rooms that are built but not touted, 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 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. We buy -- I think there's one large, well-capitalized, low-leverage company that pays 280E taxes. The only one that pays 280E taxes, 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, if we bring our capacity on, we should have some excess capacity. We do like to offer third-party product to our customers from everybody in the state, but we'll have excess capacity to serve the new stores coming on HSA-1, which are new air stores. And it's going to -- the air stores may not get there until late this year or might be pushed into next year, but they're coming. They're working on it, and we're supporting that process from a regulatory standpoint. And then in terms of the delivery, I would state that, I don't want to comment too much, but we don't think this is going to disrupt our operations. 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 my comments in the prepared section. I'll just reiterate, 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, 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 Democrats 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'll certainly speed it up and allow us to serve the market sooner.
Pablo Zuanic: 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 rec sales would pass? Are we talking July 26th, January 27th? What would be the best case scenario?
Jim Cacioppo: I think July, July of 26th would be the best case.
Operator: 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 Cacioppo for any closing remarks.
Jim Cacioppo: 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.
Operator: The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.
Trent Woloveck: Good afternoon, and thank you for joining us today on Jushi's first quarter 2025 earnings conference call. My name is Trent Woloveck, and I am the Chief Strategy Director at Jushi Holdings, Inc. With me on today's call are Jim Cacioppo, our Chairman and Chief Executive Officer; Jon Barack, our President and Chief Revenue Officer; and Michelle Mosier, 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 a detailed reconciliation of GAAP and non-GAAP results, which can be accessed from the Investor Relations section of the company's website at ir.jushico.com. Additionally, we would like to remind you that during this conference call, we will make forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance, and business. Although Jushi believes our estimates and assumptions to be reasonable, they are subject to a number of risks and uncertainties beyond our control and may prove to be inaccurate. We caution you that actual results may differ materially from any future performance suggested in the company's forward-looking 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 SEDAR, as well as the Investor Relations section of our website. These forward-looking statements speak only as of the date of this call and should not be relied upon as predictions of future events. Jushi expressly disclaims any obligation to update this forward-looking information. I will now turn the call over to Jim.
Jim Cacioppo: Thank you, Trent, and thank you, everyone, for joining our call today. Today, I will provide a high-level overview of our financial performance during the first quarter of 2025, followed by a discussion of our recent operational achievements and key 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. Starting with our financial results for the first quarter of 2025, revenue was $63.8 million as compared to $65.9 million in Q4 of 2024 and $65.5 million in Q1 of 2024. Gross profit for the quarter was $25.8 million, or 40% of revenue, compared to $25.4 million, or 39% of revenue in Q4 of 2024, and $32.3 million, or 49% of revenue in Q1 of 2024. The sequential decline in revenue was primarily driven by seasonality. The modest decline in year-over-year revenue was largely a result of continued competition and price compression, which led to increased sales promotions in our retail channel. Gross profit was also affected by higher production costs per unit from prior periods being reflected in the current quarter's cost of sales following the sale of some of these products. Net loss for the first quarter of 2025 was $17 million, compared to $18.4 million in the prior year, and improvement of $1.3 million, or 7% year-over-year. Adjusted EBITDA was $9.8 million, compared to $8 million in Q4 of 2024 and $13.3 million in Q1 of 2024. Operating cash flows were $7.5 million in Q1 of 2025, compared to $7.2 million for Q4 of 2024 and $6.5 million in Q1 of 2024. The increase in cash provided by operating activities, as compared to Q1 2024, was primarily due to factoring certain employee retention credits and an increase in cash flow from working capital. As I shared on our previous earnings call, for the first three quarters of 2024, we focused on utilizing cash for debt reduction. For the last quarter of 2024, and as we entered Q1 of 2025, we shifted towards growth-oriented capital expenditure and strategic M&A to grow our operational base and execute our 7-in-7 retail expansion strategy. Since November of 2024, we have opened six of our first seven planned locations, demonstrating strong execution and momentum for our 7-in-7 expansion efforts. This includes Mansfield, Oxford, Toledo, and Warren in Ohio, Linwood in Pennsylvania, and Peoria in Illinois. The dispensaries in Warren and Mansfield, Ohio, are not currently Jushi-owned, but operated under a management services agreement under the Beyond Hello name, and are subject to a purchase agreement, which we expect to close upon later this year, subject to regulatory approvals. We are incredibly grateful for our team's hard work and dedication in getting the Mansfield dispensary up and running in time for the most significant cannabis holiday of the year, and Ohio's first 420 with adult-use cannabis sales in effect. The grand opening was a success, and we look forward to connecting further with the cannabis community in Mansfield. Our seventh location, which will complete our initial phase of our strategy, will be in Parma, Ohio, and it's expected to open late August or early September. The second phase of our strategy is well underway with two locations identified as Little Ferry and Mount Laurel, New Jersey. These locations will mark our entry into the New Jersey market, a state we view as having significant growth potential, where we plan to further expand our retail footprint. Little Ferry is expected to open in late August or early September, and Mount Laurel in Q4 of 2025. We also have a location in Springdale, Ohio, set to open at the end of September, marking our seventh store in Ohio. These openings are subject to regulatory approval, which is a major variable in the expected timelines. Additionally, we continue to evaluate store relocation and optimization efforts across various markets, with three relocations in the planning stages. These initiatives reflect our ongoing commitment to strengthening our retail presence and maximizing performance across all regions. We continue to trend towards our goal of completing the 7-in-7 strategy and opening 14 stores by mid-2026. This strategic phase of growth will enhance our scale and purchasing leverage to better serve our patients and customers. At the same time, it allows us to optimize our wholesale operations and remain disciplined with capital allocation as competition intensifies across the market. Turning to our grower processor footprint, we continue to make targeted high-return investments at our facilities to meet current demand in key markets, such as Pennsylvania and Virginia, where we are adding canopy and dry room space to both increase biomass volume and quality to better and more profitably serve our patients in these two medical markets. We have recently seen considerable uncertainty among several large and small operators in several of our states, particularly tied to sale-leaseback structures on cultivation and manufacturing facilities. In some cases, this has led to tightening supply. We believe this environment could help stabilize pricing and could present opportunities to capture demand in the marketplace. We are currently in the design phase for additional facility expansions in both Pennsylvania and Virginia specifically to prepare for potential adult-use markets. However, as mentioned on our last call, we will hold off beginning the work until there is greater regulatory clarity and a lower cost of capital for the company. In addition, we can increase the scale of our grower processor in Ohio if we choose to increase verticality if our cost of capital declines. As we mentioned last quarter, across our GP footprint, we recently began working with a tobacco-based vape company to implement new hardware and a filling machine to drive further cost savings. While our initial order was placed earlier this year and it's unlikely to be impacted by tariff implementations, there is the potential that future orders could be impacted. We are ensuring we review all options, including domestic sourcing and utilizing other suppliers that have less exposure to tariffs. Given the vendor change in our current inventory position, we expect the current impact of tariffs to be minimal. With that said, we continue to monitor implications on broader CapEx investments, especially where specialized equipment may fall under new tariff classifications. We don't currently expect other materials, such as packaging, to be impacted by the tariffs. Moving on to our latest brand and product portfolio, we continue to expand our offering with the launch of 391 new high-margin SKUs during the first quarter of 2025. Our sachet and the lab brands have been standout performers, with 129 and 159 newly introduced SKUs, respectively, during the quarter. Our newest brand, Flower Foundry, continues to do extremely well in Virginia and remains one of our most sought-after products in the state. Notably, in Virginia, our retail delivery business in both our HSA2 and out-of-HSA2 offerings continue to contribute to our market success, showing steady growth in total unique patients, orders, sales, and basket size. Additionally, based on our data from a third-party provider, it is estimated that Jushi operates five of the top six performing stores in Virginia by revenue, with all six of our locations ranking in the top 10 in the state. Strengthening our balance sheet remains a key priority to support our strategic expansion plans, and in February of 2025, we executed an agreement to factor certain ERC claims and received $5.1 million in net cash proceeds. We are also entitled to receive a portion of any interest paid on our respective ERC claims through the date of the transaction. During Q1 of 2025, we received $2.2 million in ERC refunds related to the claims we retained, plus approximately $500,000 of interest on both factored and retained claims. We continue to move forward with potential sales of non-core assets to generate additional cash. However, the pace and certainty of these transactions is dependent on regulatory approvals. Upon completion, we expect them to generate approximately $3 million. On the regulatory front, in Pennsylvania, any bill must move through the House and Senate before reaching the Governor's desk for final approval. While there will undoubtedly be competing ideas throughout this process, we remain optimistic, particularly as it is now being coordinated alongside the state budget. Notably, cannabis is being discussed in parallel with regulation of skilled gaming, which like cannabis in its current form within the state, remains both unregulated and untaxed. The alignment could help drive a comprehensive and thoughtful regulatory framework. In Virginia, the gubernatorial race between Democrat Abigail Spanberger and Republican Winsome Earl-Sears is now officially set for November 2025. A recent poll had the Democrat candidate up by 15 points. While the race will continue to develop in the months ahead, we are closely watching the outcome and remain optimistic about what a Democratic victory could mean for the Commonwealth cannabis policy direction moving forward, noting that Democrats have passed adult use legislation two years in a row. At the federal level, we are mindful of the unresolved issues stemming from the Farm Bill loophole that we believe could cause significant harm to the regulated industry. This loophole has not only impacted industry revenue by enabling the sale of unregulated THC products, but has also introduced confusion at both the legislative and regulatory levels, undermining progress toward a unified framework. As such, we are actively exploring litigation channels to address businesses that are exploiting this gap while continuing to advocate for meaningful reform that supports a fair, safe, and well-regulated market. There is active legislation filed in Massachusetts to allow for retail consolidation and modernization of the adult use cannabis program. Nevada remains a sad story as the state has allowed the illicit market, which includes intoxicating hemp products, to run rampant, contributing to an 18% decline since the market's peak. The larger players in Nevada seem too distracted to pursue change. Lastly, as President Trump continues to focus on his key priorities in office, we are closely monitoring the ongoing federal conversation around cannabis, including potential movements on rescheduling, the Safer Banking Act, and broader legislative normalization efforts. We remain confident that we are uniquely positioned to capitalize on a more favorable regulatory landscape as cannabis continues to gain mainstream acceptance as federal policy evolves. With that, I now ask Michelle to review our financial results before we open the call to questions.
Michelle Mosier: Thank you, Jim, and good afternoon, everyone. I will provide more color on our first quarter results. As Jim mentioned, revenue for the first quarter was $63.8 million, as compared to $65.5 million in the prior year. Revenue in our retail channel was $56.8 million, compared to $57.4 million. Overall, unit sales in our retail channel increased year-over-year, however, competitive pricing pressure led to a decline in overall sales dollars. This negative impact of pricing pressure was partially offset by the addition of adult use sales in Ohio, as well as increased sales in Virginia, where pricing was not a factor and we continue to drive sales with ongoing improvements in product quality and availability. Wholesale revenue was $7 million in the first quarter of 2025, compared to $8.1 million in the comparable quarter. The decrease can be primarily attributed to a decline of $1.3 million in Massachusetts due to lower bulk sales, as well as limited availability of products to third parties throughout our wholesale channel, as we prioritize supply of our retail stores. Gross profit was $25.8 million, or 40.4% of revenue, compared to $32.3 million, or 49.4% of revenue in Q1 of 2024, and $25.4 million, or 38.6% in Q4 of 2024. The year-over-year decrease in gross profit and gross profit margin was driven by competitive pricing pressure, resulting in lower sales dollars. In addition, higher production costs per unit from prior periods are being reflected in the current quarter's cost of sales, as products produced in prior quarters turn. Sequentially, there was a slight improvement in gross profit margin, which highlights the progress we made in addressing operational challenges at our grower processing facilities. With ongoing advancements, we anticipate this will further enhance gross profit margin in the coming quarters. Jushi-branded product sales as a percentage of total revenue grew to 56% across the company's five vertical markets, compared to 54% in Q1 of 2024. Operating expenses for the first quarter were $27.6 million, compared to $28.2 million in last year's first quarter. The decrease was primarily due to a reduction in non-cash share-based compensation as a result of higher forfeitures and lower value of share-based compensation granted. Operating expenses were partially offset by higher depreciation and amortization expense due to the amortization of our business licenses, which began in the second quarter of 2024. Included in other income this quarter is $2.8 million related to employee retention refund claims received during the quarter, inclusive of interest. We will be recognizing the refund claims in income as the refunds are paid by the IRS. The net loss for the first quarter of 2025 was $17 million, compared to $18.4 million in the prior year, an improvement of $1.3 million, or 7% year-over-year. Adjusted EBITDA was $9.8 million, compared to $13.3 million in the first quarter of 2024. Sequentially, Q1 2025 adjusted EBITDA grew by $1.8 million, as compared to $8 million in the fourth quarter of 2024. Moving to the balance sheet. As of March 31st, 2025, the company had approximately $27.9 million of cash, cash equivalents, and restricted cash. During the first quarter of 2025, we paid $4 million for capital expenditures. For 2025, we expect maintenance CapEx to be approximately $3 million to $5 million. Growth CapEx is anticipated to be in the range of $7 million to $12 million, which will be dependent on the regulatory environment and market conditions. As of March 31st, 2025, we had $191.2 million of principal amount of total debt subject to repayments, 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. Cash flows from operations were $7.5 million in Q1 2025, compared to $6.5 million in Q1 2024. Cash flow for the quarter was primarily driven by improvements in working capital, which include cash received for our ERC refund claims. As Jim mentioned earlier, we bolstered our balance sheet through the sale of a portion of our employee retention credit claims, generating $5.1 million in net proceeds. We are entitled to receive a portion of any interest paid on our respective ERC claims through the transaction date. For the claims we retained, we received $2.2 million in refunds from the IRS during Q1 2025, along with $500,000 in interest on the retained claims and the factored claims. As of the end of the first quarter, 2025, we had approximately $1.9 million in remaining non-factor claims outstanding. Based on the current interest rates we have received on processed ERC claims, we expect to receive between $1.5 million and $1.9 million in additional interest on the remaining open claims. During the quarter, we also issued approximately $5.1 million aggregate principal amount of second lien notes to related parties for cash proceeds of $4.6 million. The notes mature in 2026, and we intend to use the capital to improve liquidity and fund strategic initiatives that will enhance operational efficiency and long-term growth. And with that, I'll now turn the call back to Jim for concluding remarks.
Jim Cacioppo: Thank you, Michelle. Our 7-in-7 retail expansion strategy remains firmly on track, as do several store relocations. We are very pleased with the successful launch of our first six initial retail locations, with more on the way. We continue to make progress with store expansions and moves in Illinois, Ohio, Pennsylvania, and New Jersey. After too many past miscues, we have a new, primarily homegrown grower processor team that has been put in place late in the fourth quarter of 2024 and throughout the first quarter of 2025. We expect this upgrade in management in conjunction with many high-return capital investments being implemented across our grower processor footprint should yield strong increases in margins in the coming quarters. We are also seeing strong opportunities from our branded product initiatives, with new high-margin SKUs launching across medical, retail, and wholesale channels. None of this would be possible without the continued dedication and hard work of our team, and I want to extend my sincere thanks to everyone across Jushi for their commitment and focus. Thank you all for joining us today and for your continued support. We look forward to sharing more updates in the near future. Operator, please open the call to questions.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] And today's first question comes from Luke Hannan with Canaccord Genuity. Please proceed.
Luke Hannan: Maybe we'll start with Pennsylvania. I mean, you did touch on it in your prepared remarks, what's going on from a legislative perspective. I mean, can you just share what's your expectations, your basic expectations, I guess, if you will? And then secondly, I think I would say something about potentially being able to expand cultivation should the market turn more in your favor. I mean, how quickly would you be able to turn that on in the event that we do get some positive movements when it comes to legalization for an adult use market being set up in Pennsylvania? Thanks.
Jim Cacioppo: Hi. Thanks, Luke. In terms of the Pennsylvania process, there has been a lot of news out today. The governor tweeted that now it's time to find an agreement is the end of his tweet. Now it's time to find an agreement and send a bill to my desk. So what we think is going on is the Republican controlled Senate is working on a bipartisan bill that should come out in the coming days or weeks. It's been a long-term process of them working on it. We believe that bill looks somewhat similar to what was filed last year in the Senate and the House last year. So it's pretty similar to what was filed in both branches. And then you have this bill that was to come out of the House. And if you read through the press, I think you could see for yourself that they're backing off of it and saying, hey, it's a chance to start talking. And they're trying to back off of it because they know it's a very ugly bill that has no chance. It's the dead-on-arrival type thing. And the question is, will the governor be able to bring parties together to cut a deal? That's what it really comes down to. He has been effective in the past, and we hope he uses popularity and his political skills to do such this year.
Luke Hannan: The capacity?
Jim Cacioppo: Yeah, the capacity. So we're working on a capacity expansion now for medical that's in-warehouse. We think we can utilize some of that capacity in medical. And we don't necessarily have to do it all at once in the warehouse. We might do it. We're doing a few rooms to start, and then we'll have some more we can do in-warehouse. So the answer is, we have two stages to adult use. One could be done very quickly, before the program would start. And then the other would be adding to our warehouse. We have plenty of land. And then we would look at the market to see how much of the market we think can be supplied by third parties, whether the capital would be best employed there. Or, for example, in Virginia, where we expect the Democrats to win the election, and that noting that they passed bills two years in a row. So depending upon the capital markets, our cost of capital, we'll have a decision to make, do we do both of those projects to expand for adult use, or do we just favor Virginia? Because we know that Pennsylvania has a pretty good base of grower processors that could bring more capacity on market with existing warehouses of existing license holders, a lot of which are large MSOs.
Luke Hannan: I mean, that's a nice segue into my next question here. So it mentions retail revenue decrease in all states, but Virginia and Ohio are standards. Ohio, I imagine, I mean, you touched on your prepared remarks, the first 20 that they had with an adult use market there. But Virginia, I mean, can you talk about what's going right for you in that state?
Jim Cacioppo: Yeah, Virginia, we noted for the first time we had data by a third party that says that we have five out of the top six stores in the state are Jushi owned stores, and there's 24 stores in the state. And we have all six of our stores are in the top 10. And so basically, it's still an early stage medical market or maybe mid-stage now where there's that same source sales growth. Our stores happen to be competitive with Maryland. And we're making very good margins on a vertical basis. And so, and we're already competitive with Maryland. So we really feel good about that business both in the short term and the longer term, because it's not like we're have these huge prices in an early medical market. We're competitive to an adult use market that our neighbors are HSA.
Luke Hannan: Last one, and then maybe I'll pass the line here. You talked about some of the margin headwinds that you experienced during the quarter because you had higher cost products that was flowing through your P&L. But you now established a better team behind your cultivation. And so in practice, that should lead to higher margins over the long term. When should we expect the margin headwinds associated with some of that higher cost products to roll off during the year?
Jim Cacioppo: Yeah, I mean, they're rolling off in Q2. The question is how much of it. And I don't know, because it's still early in the quarter. And the data we get is lagging. But we do know that yields have gone up and processing is stabilizing. We had multiple issues related to previous management at a granular level and then above that level, like, 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 that 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 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.
Operator: And our next question comes from Frederico Gomez with ATB Capital Markets. Please proceed.
Frederico Gomez: First question, you mentioned the continued competition and price compression impacting retail sales across the footprint. So I'm just curious, what sort of pressure are you seeing specifically in Ohio and how your new stores in the state are performing so far compared to your expectations? Thanks.
Jim Cacioppo: Yeah, thank you. I would say new stores are meeting expectations. But remember, we're operators and we 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-store sales growth for a period of time which could be anywhere from 12 to 24 months. That's pretty dramatic as people figure it out. And Ohio is a difficult advertising market, so it's more like a medical -- 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. There's always, obviously, some promotions and this and that. I'm not counting that. But generally, the prices are pretty fine, and margins are good, and we're growing sales on a same-store sales basis in those two states.
Frederico Gomez: And then just a second question. I think you mentioned in your prepared remarks that 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?
Jim Cacioppo: Yeah, thank you. Yeah, 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 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 on the retail side, which would really change the nature of that market. It's needed. I think it's well supported by 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 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 that went a large private MSO that publicly went through a restructuring, publicly meaning, there's 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 stabilized. That doesn't mean everybody's, 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, that seems to be sort of overproducing as far as I could tell. And we only see one of quite a few. There's a double-digit number of GPs out there that I would call large.
Operator: [Operator Instructions] And the next question comes from Pablo Zuanic with Zuanic & Associates. Please proceed.
Pablo Zuanic: Jim, can we talk about the 18 stores you have in Pennsylvania? I'm not talking about rec, I'm 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.
Jim Cacioppo: 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 products on the shelf. That's both Jushi 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. But so we think that we have sort of a differentiated offering on that level, and it's recognized in the market. We also have a very good online system that's known to be very, very good, where you can go and do a pre-order. 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, cannabis, 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 our, 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, 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 have, we constantly work our store base. We're already doing that in Ohio too, by the way. So I think we're one of the operators who works the store base quite hard.
Pablo Zuanic: But in terms of numbers, do you think that revenue per store is similar to a state average, or are you overindexed or underindexed?
Jim Cacioppo: Well, I don't really follow that very closely. So, I can't answer that question.
Pablo Zuanic: I mean, 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 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.
Jim Cacioppo: 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 Josh Shapiro is 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 there's some of the stuff going on federally. There might be some block grants. And so there is, 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 -- you know the process [Indiscernible] 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 he's a very -- he has very strong political skills. And if he wants to use them here, there's every opportunity too. 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. And they have a reserve fund, but they've depleted it to the point where it's at, like, the bottom -- like the -- where the more conservative people in the state don't want to go below. They're sort of at that level-ish right now. So they really need the revenue. And this is an easy way to pick up revenue because you're taxing, essentially, 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. In fact, probably number two. Number one, they're buying in the illegal market. And the only way to compete with the illegal market, it 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 it. A competitive product in terms of quality and price on the legal market. So I think that that is all very well recognized. Nothing I have said is brave. It's all, this is all, like, how it works, how it is working.
Pablo Zuanic: Just two more here. So Virginia, again, focusing on the medical market. 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 home 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.
Jim Cacioppo: I mean, I don't think it's -- yeah, 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, is, are there patients that have stagnated and they're not coming back anymore and they dropped out of the market, right? People do move. People might just 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 I don't think it's fair to say that because we don't have the other end of -- we don't have a clean number. So it's not right for us to be sharing that. 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, it's a good business. It's solid margins. We're somewhat product-constrained right there. 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. But we have existing capacity in our warehouse of grow rooms that are built but not touted, 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 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. We buy -- I think there's one large, well-capitalized, low-leverage company that pays 280E taxes. The only one that pays 280E taxes, 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, if we bring our capacity on, we should have some excess capacity. We do like to offer third-party product to our customers from everybody in the state, but we'll have excess capacity to serve the new stores coming on HSA-1, which are new air stores. And it's going to -- the air stores may not get there until late this year or might be pushed into next year, but they're coming. They're working on it, and we're supporting that process from a regulatory standpoint. And then in terms of the delivery, I would state that, I don't want to comment too much, but we don't think this is going to disrupt our operations. 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 my comments in the prepared section. I'll just reiterate, 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, 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 Democrats 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'll certainly speed it up and allow us to serve the market sooner.
Pablo Zuanic: 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 rec sales would pass? Are we talking July 26th, January 27th? What would be the best case scenario?
Jim Cacioppo: I think July, July of 26th would be the best case.
Operator: 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 Cacioppo for any closing remarks.
Jim Cacioppo: 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.
Operator: The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.