JUSHF - Jushi Holdings Inc.

Operator: Good afternoon. My name is Dorvin, and I will be your conference operator today. At this time, I would like to welcome everyone to Jushi Holdings, Inc.'s Second Quarter 2025 Earnings Conference Call. Today's call is being recorded. I will now turn the call over to Trent Woloveck, Co-Chief Strategy Director. Thank you. Please go ahead.
Trenton Woloveck: Good afternoon, and thank you for joining us today on Jushi's Second Quarter 2025 Earnings Conference Call. My name is Trent Woloveck, and I am the Co-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, Chief Revenue Officer and Corporate Secretary; 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 are 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.
James Anthony Cacioppo: Thank you, Trent, and thank you, everyone, for joining our call. Today, I will provide a high-level overview of our financial performance during the second 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. To begin with, I am pleased to report encouraging top line growth in the second quarter with revenue of $65 million compared to $63.8 million last quarter and $64.6 million in Q2 of 2024. This performance was driven by increases in retail revenue of $2.6 million sequentially and $2.4 million year-over-year with strong contributions from both Ohio and Virginia. This was partially offset by decreases in wholesale revenue of $1.4 million sequentially and $2 million year-over-year, primarily due to limited availability of products available to third parties as we prioritize supplying our retail stores and delays from the state-mandated seed-to-sale system conversion that limited shipments near quarter end in Virginia. With strong sales momentum and 5 stores now open in the state, Ohio continues to be a significant growth driver in our retail channel. Gross profit for the second quarter was $28.9 million or 44% of revenue compared to $25.8 million or 40% in Q1 of 2025 and $32.6 million or 50% of revenue in Q2 of 2024. Sequentially, we are beginning to see early improvements in gross margin as the impact of previously elevated production costs driven by lower production volumes and inventory inefficiencies in earlier periods continues to phase out. In the second quarter, net loss was $12.3 million compared to $17 million last quarter and $1.9 million in the prior year. On a sequential basis, this represents a $4.7 million reduction of net loss. Adjusted EBITDA was $13.7 million compared to $9.8 million in Q1 of 2025 and $14.5 million in Q2 of 2024. Cash flows used in operations was $1.9 million in Q2 of 2025 compared to cash flows provided by operations of $7.5 million for Q1 2025 and $5.5 million in Q2 of 2024. The decrease quarter-over-quarter was primarily driven by a decrease in cash flow from working capital, whereas the decrease year-over-year was also due to a decline in our operating results. Turning to our retail expansion strategy. We have strategically concentrated our growth-oriented investments on accelerating the expansion of our store footprint over the past 3 quarters. Since launching this initiative in the fourth quarter of 2024, 6 new locations have been opened. This includes Lynnwood in Pennsylvania and Peoria in Illinois, expanding our total store count to 18 and 5 in those states, respectively. In Ohio, we added dispensaries in Oxford, Toledo and Warren, followed by our most recent opening in Mansfield in the second quarter, just in time for the state's first ever 420 with adult-use sales in effect. Our Mansfield, Ohio location is currently operating under a management services agreement under the BEYOND/HELLO name. We expect to close on full ownership of this site later this year, pending regulatory approval. With this progress, we remain on track to open 10 new stores in total by the end of the year or early next year since the retail expansion strategy launched. Late in the third quarter or early in the fourth quarter, we expect to open our sixth dispensary in Ohio located in Parma, as well as our anticipated entry into the New Jersey market with a store in Little Ferry. We also plan to add locations in Mount Laurel, New Jersey and Springdale, Ohio by the end of the fourth quarter or early in the first quarter 2026, all pending regulatory approval. As of the end of the second quarter, we had 1,201 employees across 40 retail stores, representing a modest 2% increase in headcount from 1177 employees in Q2 of last year. That is despite a 14% increase in our store count, up from 35 a year ago. This speaks to the success of our labor optimization initiatives, along with disciplined cost management across our business. Looking ahead, we have identified high potential store locations in Massachusetts and Ohio, along with multiple new opportunities in Illinois. Several store relocations are currently in the planning stages as we continue to refine our footprint to maximize retail space and optimize our presence in each market. However, after completing the current wave of openings, we may shift to take a more opportunistic approach to retail growth, strategically reallocating capital to our grower processor operations in alignment with evolving regulatory developments in Pennsylvania and the election polling in Virginia. In grower-processor operations, we are already making strategic high-return investments to address current demand in Pennsylvania and Virginia, while preparing our platform for the potential adoption of adult-use programs in these states. Our capital spend primarily targets canopy expansion, enabling us to scale production to full capacity as needed in both states while improving quality and output to better serve our patients. In Pennsylvania, we are in Phase 1 of our 3-phase GP expansion. This phase includes converting a legacy oversized existing grow room that was primarily used for low-margin distillate into 3 smaller high-quality flower rooms. While the overall square footage remains the same, this redesign enables us to better control environmental conditions such as temperature, humidity and airflow, which are critical to optimizing plant health and yields. By creating smaller, more manageable environments, we are able to increase planting density and plant quality. This should be a very high ROI investment as we expect the renovation to improve biomass yield in the space by 240% with an estimated 400 to 500 pounds of incremental flower per harvest, which is like adding an extra 4,000 square feet of canopy or 10% equivalent total increase. In Phase 2, we plan to retrofit another oversized grow room currently being used for non-grow activities using the same approach, allowing for the addition of up to 3 more flower rooms with a projected canopy increase of approximately 15%. Phase 3, which is contingent upon adult-use becoming a reality, focuses on another canopy expansion. This will involve relocating administrative operations to another building on the property, freeing up license space in the existing warehouse to be converted into cultivation. This expansion could accommodate an additional 5,000 to 10,000 square feet of flower rooms and has the potential to increase our canopy by an incremental 10% to 15%, subject to final designs. Taken together, these upgrades are expected to increase our total canopy in Pennsylvania by approximately 35% to 45-plus percent once all phases are complete. In Virginia, we have opened a new 2,500 square foot flower room during Q2 at our grower-processor facility and have the capacity to add up to 2 additional rooms of similar size within our existing footprint. Construction on one of these additional rooms has begun. With these 3 new rooms, our canopy is expected to increase by up to approximately 50% in 2025 and 2026. We are also currently in the design phase for a potential GP warehouse expansion in Virginia and have the potential to do the same in Pennsylvania, as we have significant undeveloped plots of land at both of these locations. However, as mentioned on our last call, we do not plan to move forward with these projects until there is greater clarity on the regulatory landscape, the market needs and a lower cost of capital for the company. In Ohio, we have the flexibility to scale our grower-processor operations if we choose to increase our vertical presence, particularly if our cost of capital improves. The good news is we are building significant retail distribution that can absorb such an expansion and the grower-processor is in a building with excess land that we own. This is a project we would like to start in 2026. The benefits of our quality improvements and operational efficiency initiatives across our grower-processor operations are beginning to be reflected in our financial results. This progress follows a number of targeted actions taken throughout 2025, to address operational challenges and inefficiencies, particularly in Massachusetts and Pennsylvania, where we are now seeing encouraging results in both yield and product quality. While these improvements typically take time to flow through to our retail operations, we are encouraged by the positive trends emerging across both channels. Next, I would like to highlight the continued expansion and innovation within our brand and product portfolio. Over the second quarter, we strengthened our offering with the launch of 602 new product SKUs across our footprint. In some of these cases, we capture higher margin on these SKUs as we are growing in the higher quality space of the market. Our Seche and The Lab brands remained strong performers, accounting for 253 and 193 SKUs launched, respectively. While our higher-quality brands, Flower Foundry and Hijinks are still in early stages of growth. They continue to show steady traction in total package sales. Also, our product assortment continues to grow across all states. Significant progress was made on both the wholesale and retail fronts in Ohio. On the wholesale side, we expanded product distribution to 12 additional dispensaries during the quarter, bringing our total presence to approximately 33% of dispensaries in the state, up 27% from Q1. On the retail side, the successful launch of our Mansfield store, along with continued growth in Warren drove record-breaking sales weeks throughout the quarter, including Memorial Day and 420. In Virginia, we increased availability of high potency flower from Flower Foundry, which ended the second quarter as our third top- selling brand in both dollars and units in the state. Additionally, we also launched Shayo, a new cannabis lifestyle brand created in partnership with Real Housewives of Potomac star Stacey Rusch. The brand features rosin-infused fruit chews available in 2 SKUs, Rise featuring a THC and CBG profile and Rest, a THC and CBN blend. These products are currently available at all BEYOND/ HELLO stores across Virginia with third-party dispensaries expected to carry them in the near term. Our Virginia delivery operations continue to drive our performance in the state with year-over-year and sequential growth across delivery orders, sales and total unique patients in both our HSA 2 and out of HSA-2 areas. Based on data from our third-party provider, delivery sales rose year-over-year by approximately 40% in HSA-2 and 108% out of HSA-2, while orders per day expanded by 35% and 100%, respectively. We also saw meaningful growth in patient engagement with notable annual growth in unique patients. The result reflects the strong relationship we are building with patients in Virginia and reinforced Jushi's position as a trusted provider in the market. Transitioning to our balance sheet. We continue to focus on strengthening our capital structure to support our long-term strategic priorities. In Q2, we received approximately $4 million in employee retention credit claims, including interest, which included both factored and non-factored claims. This added approximately $1 million in incremental cash to our balance sheet. To date, we have received $6.2 million of the $10.1 million in ERC claims, excluding interest. Additionally, as part of our ongoing focus to strengthen our financial position and support our strategic expansion plans, the retail license for our Las Vegas Strip dispensary in Nevada was sold and transferred for $3 million in cash. Given the dominance of the illicit market and its impact on the regulated market, we concluded that maintaining a presence in that specific region of the state was no longer strategically justified. This decision reflects our commitment to actively manage our portfolio of stores to maximize sales performance and shareholder value. Lastly, the recent federal passage of the One Big beautiful bill is expected to strengthen our balance sheet. The bill allows for the inclusion of depreciation and amortization, which are significant noncash expenses when calculating our interest deductions. We expect our deductible interest to increase by approximately $6 million to $7 million, which would reduce our taxable income and generate an estimated $1.2 million to $1.4 million in cash tax savings, assuming a 21% tax rate. While more progress is needed to stabilize the industry financially, this is an important step forward. The bill also makes 100% bonus depreciation permanently available, allowing us to fully expense qualifying capital investment upfront. This election-based provision is expected to benefit us even more in the future as we expand our capital investment across the footprint. Moving to our regulatory outlook. While the broader landscape continues to evolve, we are closely tracking developments in Pennsylvania and Virginia poised to be long-term catalysts. In Pennsylvania, bipartisan and bicameral discussions around adult-use legalization are ongoing with proposed fees tied to a program conversion that is closely linked to the state budget, which is expected to remain under negotiations through the summer. Governor Shapiro has a clear opportunity to finalize adult-use cannabis legislation offering a revenue-generating alternative to raising taxes on Commonwealth residents. This is a pivotal moment that calls for decisive leadership. And we are hopeful that this critical initiative will move forward. Next, in Virginia, the gubernatorial race continues. Democratic candidate, Abigail Spanberger has gained momentum with recent polls showing a lead of 12 to 17 points and a strong fundraising effort in the second quarter of $10.7 million. We are hopeful that a Democratic victory could renew momentum for the industry given that the Democratic control legislature has passed an adult-use bill in Virginia 2 years in a row. At the federal level, progress continues on proposed regulations for hemp-derived detoxicating and synthetic THC, which has long posed unfair competition to the licensed cannabis market. Now having advanced through the House and a Senate Committee, this reform is critical to establishing a fair, safe, and well-regulated industry across the U.S. and ensuring public health and safety. There has been renewed support in lobbying to reschedule cannabis from Schedule I to Schedule III. The recent appointment of Terrence Cole as DEA administrator adds potentially pivotal voice to the process as early indications suggest he may be open to a more thoughtful and reform-oriented approach to cannabis policy. Senator Schumer's attempt to include the SAFER Banking Act in the government funding bill was blocked, which has prompted him to explore merging the cannabis banking measure with cryptocurrency legislation as an alternative path forward. Following potential rescheduling, the SAFER Banking Act could advance shortly after, though it may take up to a year to clear all approvals. We continue to monitor both federal and state-level cannabis policy developments and believe we are well positioned to benefit from a refreshed regulatory environment, one that acknowledges the reality of today's industry and advances the normalization of cannabis through thoughtful modern legislation. With that, I will now ask Michelle to review our financial results before we open the call to questions.
Michelle O. Mosier: Thank you, Jim, and good afternoon, everyone. I will now provide more color on our second quarter results. As Jim mentioned, revenue for the second quarter was slightly higher than the prior year at $65 million as compared to $64.6 million. Revenue in our retail channel was $59.4 million compared to $57 million. The increase was due to higher sales in Virginia and Ohio. In Ohio, sales increased $4.1 million as we benefited from strong adult-use sales and new store openings, including our fifth location in the state, which opened in Mansfield during the second quarter. Revenue in Virginia increased $1.8 million, driven by an increase in units sold, which in part is due to an increase in revenue generated from deliveries, both within and outside our health service area. This growth was offset by the ongoing impact of competitive pricing pressure across various markets. Wholesale revenue was $5.6 million compared to $7.6 million in the comparable quarter in the prior year. The decrease was primarily driven by a $1.5 million decline in Virginia due to reduced allocation of products to third-party partners as we prioritized inventory for our own retail stores and delays from the state-mandated seed-to-sale inventory tracking system conversion, which prevented us from shipping to certain customers close to the end of the quarter. Additionally, bulk cannabis flower sales declined in Massachusetts. Gross profit was $28.9 million or 44% of revenue compared to $32.6 million or 50% of revenue in Q2 2024. The year-over-year decreases in gross profit and gross profit margin were primarily driven by competitive pricing pressure requiring higher discounting in our retail channel. In addition, higher production cost per unit from product produced in prior quarters is flowing through cost of sales in the current period as these products turn. These negative factors were partially offset by higher gross profit and gross profit margins in Ohio as a result of new store openings and lower costs following the ramping up of our Ohio grower-processor facilities in 2024 to support the transition to adult use. Sequentially, gross profit improved $3.1 million, while gross profit margin increased by 410 basis points. As Jim covered earlier, the operational challenges at our grower-processor facilities has been addressed. And we are beginning to see early improvements in gross profit as efficiencies take hold and higher production volumes support improved cost absorption. Jushi branded product sales as a percentage of total retail revenue was 56% across the company's 5 vertical markets, remaining relatively flat with both Q2 2024 and the prior quarter. Operating expenses for the second quarter were $25.3 million compared to $24.2 million in last year's second quarter. The increase was due to higher depreciation and amortization expense related to the amortization of our business licenses, which began in June of 2024, as we concluded that our business licenses no longer have indefinite useful lives and higher operating expenses in relation to new dispensary openings. These increases were partially offset by higher gains on the sale of noncore assets. Included in other income in Q2 is $4 million related to employee retention credit claim refunds received from the IRS during the quarter, inclusive of interest. We will continue recognizing the refund claims and income as the refunds are paid by the IRS. As of the end of Q2 2025, we had approximately $3.9 million in remaining claims outstanding, of which $1.6 million was not factored. Based on the current interest rates we have received on process ERC refunds, we expect to receive between $700,000 and $1 million in additional interest on the remaining open claims. Net loss for the second quarter was $12.3 million compared to $1.9 million in the prior year. Sequentially, we reduced our net loss by $4.7 million from $17 million in Q1 2025. Adjusted EBITDA was $13.7 million compared to $14.5 million in the second quarter of 2024. Sequentially, adjusted EBITDA grew by $3.9 million or 39.6% as compared to $9.8 million in Q1 2025, with adjusted EBITDA margin increasing by 570 basis points sequentially from 15.4% to 21.1%. Moving to the balance sheet. As of June 30, 2025, the company had approximately $25.2 million of cash, cash equivalents and restricted cash. On a year-to-date basis through Q2 2025, capital expenditures were $8.1 million. As mentioned on our last call, for 2025, we expect maintenance capital expenditures to be approximately $3 million to $5 million. Growth CapEx is anticipated to be in the range of $8 million to $14 million, which will be dependent on the regulatory environment and market conditions. As of June 30, we had $192 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 and equipment financing obligations. Cash used in operations was $1.9 million in Q2 2025 compared to cash provided by operations of $7.5 million in Q1 2025 and $5.5 million in Q2 2024. The sequential decline was primarily driven by a decrease in cash flow from working capital. This decrease reflects the timing of cash received related to employee retention credit claims. Specifically, in Q1 2025, we benefited from a significant inflow of cash from the factoring of ERC claims and received more retained claims directly from the IRS, which did not recur at the same level in the second quarter. The decrease year-over-year was due primarily to a decline in our operating results. And with that, I'll now turn the call back to Jim for concluding remarks.
James Anthony Cacioppo: Thank you, Michelle. The progress reflected in our results this quarter underscores the alignment between our growth initiatives and prudent cost management. With a clear road map to expand our retail footprint over the next few quarters, we are well positioned to shift focus and deploy growth capital toward our grower-processor operations as we ready our platform for potential adult-use catalysts in Pennsylvania and Virginia. Recent operational upgrades and the strength of our cultivation and processing operations gives us confidence in our ability to continue delivering improved yields, margin expansion and greater efficiency in the quarters ahead. In parallel, the ramp-up of high-margin SKUs across medical, retail, and wholesale channels is expected to generate meaningful value. We are also excited to enter the New Jersey market in the third quarter, where we believe our retail brand and product selection will resonate strongly with local consumers. As we execute against our plan, we remain focused on disciplined cost management and strengthening our balance sheet to support sustainable growth and generate value for our shareholders. Finally, I'd like to thank our incredibly hard-working team at Jushi. Their continued focus and dedication are what drive our progress every day. 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: [Operator Instructions] Our first question comes from Luke Hannan with Canaccord Genuity.
Luke Hannan: Jim, I wanted to follow up in your script there when you were talking about the banking, the executive order that's being advanced this week. And then you talked about the potential for SAFER banking to be reintroduced at some point within a year, I believe you said. Can you just walk us through, I mean, what you're seeing, what you're hearing as of today from your industry context? And also what's underpinning that year time line? Is there anything else going on behind the scenes? Or is that just your best view of based on the normal workings of Congress when you might expect something like that to happen?
James Anthony Cacioppo: Yes. Thanks, Luke. The second part of your question about the SAFER banking is just our expectation based upon the priorities of what we see out there right now of industry participants and the government. So I mean, you can always get lucky, but that's our best guess kind of thing. The first part relates to rescheduling is your question?
Luke Hannan: Yes.
James Anthony Cacioppo: Yes. I didn't mention anything about executive order. But yes, I mean, we don't have a lot to add on that. It's -- I think what's understood out there is sort of being covered by people. And we're really not privy anything that hasn't already been out there. It just -- for us, feels like it's about time. And you look at the administration's priorities. Clearly, the tax bill was the largest priority along with tariffs and immigration. So they've achieved a lot of their goals with regard to that. And it seems like some of these more tertiary things like what we're focused on with rescheduling, it's more likely that their turn could be in the coming months.
Luke Hannan: Okay. And then you also touched on the hemp-derived THC space. I know in the past, you guys had entertained the idea of potentially engaging in litigation there. But because there's a little bit more movement on the federal level to address this, have you reconsidered that? Or where do things stands on that front for you guys?
James Anthony Cacioppo: Yes. We don't comment on potential litigation like that. But I will say that we are very focused on that. And we are committing some resources to that. We do believe that this issue is underdiscussed by MSOs who have the ability to talk about it more. And to be quite honest, we think it's underdiscussed by people like yourselves and analysts in sort of analyzing where the competition is coming from. So if you look at a state like Pennsylvania, I think everybody is really focused on the border states that have adult use, which literally, I think is all of them now, except for West Virginia because Delaware just went. And but there's just a ton of smoke shops in state. We see it in Virginia. And I mean, in Nevada, we just sold a dispensary there. It's a joke. That regulator should be shamed themselves. They charged us a fortune. The lots are very small for testing. The taxes are very high. They're very difficult in the legal industry. And they do nothing on the illegal industry, both the smoke shops and what we believe is a large amount of California product that comes in probably by truck into the Nevada market. So that regulator is one of the worst -- I have to add them to New York and California, maybe as the top 3 at the bottom of the barrel.
Luke Hannan: Okay. And just a couple more here. So you talked about margins being at a point where they're going to inflect. You're getting the benefit of some of the newer grow, the more efficient grow you have. You're turning those products sitting on the balance sheet now. But eventually, you are going to be selling those and that should be a boon to margins. Can you just give us a rough sense? I mean, where do things stands when it comes to selling through some of that higher cost inventory? Or maybe better way to word that question is when should we see margins inflect? Are you already seeing that in Q3 to date?
James Anthony Cacioppo: Yes. I mean you've seen it in Q2, right? You saw sequentially, the margins have come up. And I mean, we take a ton of analysis to understand exactly what it was. But I think efficiencies, grow efficiencies and quality had something to do with it. I think, hopefully, we'll continue to see it. I mean Q3 has historically been the slowest seasonal quarter on the sales line. And you get the tougher weather conditions we're going with high heat. But so far, so good for us. July is usually a pretty awful month. But compared to like June or May or April or even some of the later months in the year and the fourth quarter is always the best. But having said all that, we think that July has surprised us very much. And we think you're going to continue to see it this margin improvement in Q3. And as sales hit that seasonally strong point in Q4, you could even see it more because you're selling more product. But it's happening. And remembering that a perpetual grow has about 8 weeks of harvest, which if I remember correctly, each harvest takes 12 weeks. So the tail is long. I would say that we don't have, to my knowledge, this is -- we don't have any significant amount of this high cost -- so-called high- cost inventory. That plagued us in Q4 and on into Q1 and Q3 of last year and into Q1 this year. So we think we're substantially through that. And we keep plugging away. And it could be a real boon for the company. And of course, adult use would increase -- I've laid out the grows, the grow expansions that we're in the process of doing, both in Virginia, just to meet medical demand and in Pennsylvania. And if you grow more flower in a cost environment, which is substantially fixed, or more biomass, I should say, because you do get trim, that brings down your unit cost. So if you look, we laid out percentages. So if I was looking at this like a private equity analyst, I'm looking over 18 months longer term than a quarterly analyst would look at or public analyst, I should say. We would look at -- if you look over 18 months, that's a quite substantial reduction in unit cost in 2 facilities, which have been underutilized based on the full potential.
Luke Hannan: Great. Last one and I'll pass the line here. I think I know the answer to this, but just to be absolutely clear. When the dispensary in Ohio and it flips from MSA to full ownership later this year. Is there going to be any change as far as how that flows through the P&L?
James Anthony Cacioppo: I don't think so. Michelle, is there a change?
Michelle O. Mosier: Sorry, I was on mute. No, there will be no change. We're consolidating it today and we'll do so in the future.
Operator: Our next question comes from Frederico Gomes with ATB Capital Markets.
Frederico Yokota Choucair Gomes: Just the first question, just going back to the capital investments in Pennsylvania and Virginia that you mentioned, Jim. Can you maybe just talk about how long is it going to take for you to go through that Phase 1 and Phase 2 and as well as the phase there in Virginia in terms of timing of that conclusion and ramping up cultivation.
James Anthony Cacioppo: Yes. Okay. Good. Phase 1 in Pennsylvania is -- construction is underway, included an upgrade of 2 older rooms. They were flower rooms. And we just upgraded the rooms to get better yield and better product through various things. A ton of capital, but those are online. Those have been planted. Then we're doing the dry room space that allows us for the expansion because you need increased dry room and better dry room space. So that is close to being done. And then bringing on the new rooms in that conversion of what we use for distillate now into high-quality flower rooms. Jon, we started construction on those, right? Do you know when those should roll in to be planted anyway?
Louis Jonathan Barack: Yes, yes. So that room, which was producing product for extraction, they just started. They just sort of broke ground there and it should be done in 60 days. It's not that complicated. So the planting, I think, is early October. And so we would get on product -- get on shelves probably beginning of the year from that room. Whereas the next room, kind of the next phase beyond that is currently in the design stage. And if we keep on track, then, we would probably break ground in that in Q4. And you wouldn't actually see production from that until either later Q1 or early Q2.
James Anthony Cacioppo: So that's -- yes. And what Jon was referring to was that's a Phase 2. And yes, and that one, we have to do a little more analysis on electrical load and things like that. So that's a little bit more work for us to do. But that's very similar. It's a warehouse that was used for grow. Currently it's not being used for a grow room. So it's not an extreme amount of work assuming electrical stuff is in line. And then Phase 3, if adult-use goes in Pennsylvania, I think that's going to be a very big thing for Jushi. And I think it would open up a much lower cost of capital for us. And that's a bigger expansion in terms of capital, not because it's out of warehouse, but just because it's never been used in grow capacity. Most of it hasn't been used. There's some of it that was very small amount. But most of it hasn't. So that one takes a design phase. I don't think you see anything in that until '27 or early '27 would be my guess. But that's a guesstimate. We haven't started the design phase because we want to see adult-use go before we start spending capital. We've already designed it. But I'm saying going to construction documents, the next phase of spending money.
Frederico Yokota Choucair Gomes: Got it. And then just second question on -- I think you mentioned some store relocations that you're planning. Could you talk about those in terms of how many stores you're planning to relocate, which states and timing of those as well?
James Anthony Cacioppo: Yes. So put that perspective, we have 40 stores. And we look at store. Before I was a portfolio manager for a hedge fund. So I look at stores as like a portfolio. There are some killer amazing ones and then you have some laggards. And then you have to get the layer on top of that like a Pennsylvania where we have almost half our stores, 18. It's going to flip to adult use, which changes the economics in all these stores, right? So right now, we're currently working on looking at locations to move 4 to 5 because that's what we do. We constantly see where -- because you have to -- they're all in different regions and you can't just move them anywhere. And so of those, I would imagine you'll see 2 or 3 moved in the next 18 months. One, we could pull the trigger on the construction pretty quickly. And another knock on wood, we're getting some good traction. So I feel like 2 is pretty good right now. But we're working on 4 or 5 at any one time as a portfolio management. And when Pennsylvania flips, all these stores are going to look a lot better. But it doesn't mean you just doesn't pay to move them anyway. And they're not all in Pennsylvania either, just to put a pin in that.
Operator: Our next question comes from Pablo Zuanic with Zuanic & Associates.
Pablo Ernesto Zuanic: Jim, can we talk about the debt, the $192 million there. I know that you restructured some of that last year, so you have some flexibility. But talk about where the debt markets are for you right now? Is there more offer out there, more supply or it has gotten worse? The cost that you're looking at? I know that we are playing this waiting game, right, for the federal and state level changes, but you can only wait so long for that. So just give us some context there in terms of where things are.
James Anthony Cacioppo: Yes, yes. So I would say we just didn't refi that long ago. And so it's not like we've been so out there looking to do something. I know a lot of companies are -- we're being a little more patient with it. And it's not because of federal because that's less predictable, but it's more because of Pennsylvania because it's going to radically change. We're quite optimistic on that. And so we think there's a radical change there. So it's really hard to price the company. But people are always talking to us. We've had people come in opportunistically. People who I'd refer to more like hedge funds or family offices that act like hedge funds. And we've had banks loosen up a bit. We would like to see more of that. So there's always people coming into us opportunistically. Not being in the market, it means that we don't really have our fingers on that like some people who are in the market may. So we're interested to see how that works out for some of the other folks. We have some time. And we think Virginia is going to be very positive, too. If the Virginia -- I mean, I would be very thrilled as the largest shareholder if the Democrat were elected Governor of Virginia. I think she'd be a great governor for the State of Virginia because she has a great track record. And I think it's really -- people recognize that in the polls. But for us, we put a lot of money in the state. The people of the state want adult use. It's clear in all the polling has been for a number of years. There's been one roadblock to that by the name of Glenn Younkin. And he's gone and if the Democrat gets elected. So we have really a lot of operating leverage in our system. When you look at 6 stores of Virginia plus a delivery business that goes out of our HSA, our store region. And then you have 18 in Pennsylvania and grower-processors that are underutilized in both states. The warehouse part of the underutilized, there's a tremendous amount of fixed costs that will get better utilized in an environment where sales go up dramatically. So because of that, we're going to be patient. And then for us, we have the second lien structure, which is dominated by shareholders. And we have a first lien structure that shareholders own, I think, just under 50% or around 50%, something like that. And so we feel like we're kind of more on the same page. And we don't have -- if I do the math on the second liens who aren't significant shareholders other than the warrants they got. And we look at the first liens who aren't significant shareholders other than the warrants they got, we kind of look at it like it's a manageable number. It's not like we need huge amounts. And we have paperwork in place for our first and second lien structure already. So -- and it's good paperwork done by qualified lawyers, both for the people who are in the debt, their counsels. We're a very good counsel representing them, but also the company side. So we have documentation in place. And if we do a first lien deal only, then we have that. And then if we do it first and second like we are now, we have that. And so I feel it's a much different situation than you see out there in much of the industry.
Pablo Ernesto Zuanic: Yes, that's right. That's good color. And then I don't know if this is for Michel maybe. But in terms of where we are with 280E, understood about the refunds from the EBC. But some companies in the past were able to get large refunds from 280E, right, backward claims. Have you been able to get any of those refunds? Or what's the status on those refunds? And what's the latest on the IRS? I mean we understand that they are understaffed, maybe they are becoming a bit more lenient. I mean, has there been any changes in the way that you're thinking or hoping around 280E without any reform changes, of course?
James Anthony Cacioppo: Yes. I'll start. Michelle, if you have a comment, you could come in after me. But in terms of 280E, we don't believe refunds are something the government is interested in doing. I've heard whether it's true or not. I don't know that the one big refund that happened was a mistake. It just happened very administratively before some people up top weighed in. So I don't believe the industry is getting 280E refunds. I have a pretty strong belief in that. And we haven't paid 280E taxes in the past. So I don't think we would have any kind of significant refund anyway. So that's how I think of that. The second part of the question, I know I forget was what in terms of taxes.
Pablo Ernesto Zuanic: It's more whether we understand the IRS is overstretched, right, understaffed. There's been cutbacks there. I'm just wondering if you're becoming more lenient about the whole subject or that's just wishful thing.
James Anthony Cacioppo: I wouldn't want to say that. But I would say on the ERTC claims, we saw a lot of movement. It was dead in the water for a while. And I think that reflected maybe an overworked IRS, because they had a program where there was a lot of fraud, where people who shouldn't be getting claims were applying for claims and they had to just put it down. It took longer than we thought for them to open the spigot back up. Ours obviously, valid claims. We're getting paid. So you see a lot of movement. It just took them some time. And all the public reports are that they're overstretched. So that's the biggest touch point we have on that. And in terms of auditing and going after 280E, I've talked to other companies, they don't seem to be aggressively pursuing that now. It's just -- I don't know. You don't get a lot of feedback. But they don't seem to be doing that in the industry and certainly not with us. So it's hard to tell what's behind that. It could be the rescheduling coming up. And it could be sort of people -- maybe they recognized the injustice that's happened. I don't know. But we'll see. I couldn't make a comment on that.
Pablo Ernesto Zuanic: Just a couple of more here. So just to be clear, in terms of the 7 and 7 plan, the 14 new stores, you've changed that to 10, right? And I understand that's just changes in strategy and focusing more on manufacturing. But correct me if I interpreted that wrong. You were planning to open 14 and now it's just 10. And then related to that, why the focus on New Jersey? I understand the economics still look good there, but it's getting very crowded very quickly, right? Still a lot of townships don't have stores and are banning stores are not allowing stores and you don't have production there either. So I'm just trying to understand the logic of New Jersey from your perspective.
James Anthony Cacioppo: Yes. So New Jersey our licenses we picked up very inexpensively. So there's not a lot of capital upfront. And we believe we've got good locations. We'll see. Plus there's a lot of bad credit in New Jersey for the third-party dispensaries that aren't owned by credit good MSOs, which is only 8 of them that are credit good now. And there's 2 that sort of fell out of the top. So we believe -- and we have great relationships because we're one of the largest buyer of large MSO product. So we think we have an ability to tie it into our overall purchase and do well. And plus we have a long history of paying our bills. And so we feel that there's supply there. So we don't have to build a grower-processor. So we feel like there's an opportunity for us in the state. And by the way, I believe even if it's a little disappointment. My sense is we'd be able to sell those stores for more than we put into them. Again, I'm guessing, I don't know. But I think it's like if you renovated a house, buy a house that you fix it up, you renovate it, you get -- you can sell it and make. So I think we make money on these things on the downside. So there's risk reward there. I believe it's a good risk reward. And then from an operational standpoint, with the big business in Pennsylvania, the New Jersey is easy for us to operate. The Mount Laurel ones out toward the Philly area. So it allows us to slip it into our existing management structure, creating operating leverage in terms of the management. And then finally, having stores, we've been retail first, retail heavy, which some people think is a good strategy. But having purchasing power brings down your cost because you're adding more to your ability to purchase. And on the other side, it gives you outlets for your product. And it gives you discounts that would be -- we would think, we would hope where we don't really know. But we feel like we get -- we do quite well because we're purchasing so much. We may be like with our Illinois stores, we have a strategy of having third-party product on our shelves in Pennsylvania. That's why it's only 56% for us. Some folks go a lot higher overall in all of our vertical states. Some folks go a lot higher than that. And so we feel like that's part of our retail strategy. So we may be one of the biggest, if not the biggest third-party purchaser across the country of third-party product, which gives us advantages and so we like that. In terms of the 7 and 7, I didn't answer the 7 and 7. I think you were more absolute. As a hedge fund person, I'm never really absolute because there's optionality. So -- and I want to keep my team focused. And so 10 is where we're at. We think we get those open. We've outlined clear timing on those. We have a pipeline beyond that. But I would expect to see the 11th in Ohio at some point. So we're working on stuff. We're opening other stores. But I would expect to see that over time. But what we're saying is we think our capital right now is better spent on the grower-processor side in Pennsylvania as it goes rec in Virginia. And I didn't answer, I think, somebody's question about Virginia. We're increasing capacity by 50% over '25 and '26. One of those rooms are already on. Another one is slated to come on, I think, in the early fourth quarter planted or late third quarter, something like that. There's always delays, but I lost track of it a little bit. But this is a really great use of capital. I think those investments are the highest ROI investments we have in the company. So given we have demand for the product and adult-use optionality of that is clearly the better use of capital today as opposed to November. And we did a good job. And by the way, if the world changes and our cost of capital goes down, boom, we have the focus. Our business development team and real estate team are doing the work. And we can continue on building more dispensaries.
Pablo Ernesto Zuanic: Right. And one very last one. I know you don't give revenue by state. But is Virginia now bigger than Pennsylvania for you in terms of total revenue? And maybe an update on the wholesale side. I think Verano is still a net purchaser, while, AR never hasn't opened the stores yet, but just some more color there. That's it.
James Anthony Cacioppo: Yes. I don't want to comment on the relative size of the states. I will say what I have said in the past is Virginia is our most profitable state, right? So -- and that continues. We're growing. So in terms of the production, I think Arizona the license is being challenged typical stuff, lose or lawsuits. Our sense is there will be a judgment on that and our sense is they'll move forward on building those. And they've done a lot of prework. So yes, it got delayed because of a lawsuit, a fair amount of time, whether 6, 9 months I don't recall and probably close to 9 or even 12 months, but whatever. So it's been delayed. And -- but they've done a lot of groundwork from what we understand on that and still plan to do it, but we'll see what they say. Then in terms of capacity in the state, it's quite clear Verano bought a turnaround asset. And based on what we see in the market and they're a very good company, very good grower. They turned -- they put capital. And they've done what they need to do in that facility. It appears to us. I mean we haven't confirmed this with them, but it appears that they don't have as much need. You see our wholesale sales down. And it appears that they're growing the kind of product that they're on the way let's put it this way, to growing the type of product that they like to grow. That's what it appears to us in the market. And we like having capacity in the market. If it goes adult use, we would like to see some excess capacity. And we're hoping GTI has that we understand they do. And we work closely with all the large MSOs. And we would like to -- if it goes quickly, that would be a useful thing for us I think our stores are performing very, very well on a relative scale in the state over the past 6 or 9 months. And I think a little of that has to do with the per capita income level in our states. Our consumer is less affected by some of the cost of living issues, inflation. And people maybe they don't pull back as much because they have more -- they don't -- with the tariffs and things like that undermining consumer confidence. But maybe in some of the more rural areas, you see sort of a little bit of people on hold and not as much growth and maybe a pullback. I don't know exactly. But we feel like based on some of the third-party data that our stuff is doing very, very well on a relative scale at the retail.
Operator: Our next question comes from Andrew Semple with Ventum Financial.
Andrew Semple: I'm going to start off with Virginia and the wholesale market dynamics during the quarter and kind of subsequent to the quarter. So it looks like $1.5 million was the kind of Q-on-Q decline. And that was attributed to some shipments not being completed towards quarter end. I just want to clarify, are those expected to show up in the Q3 results? Or have you sold through most of that product through your own dispensary network?
James Anthony Cacioppo: Yes. I mean -- so this -- when we say wholesale sales, this is us selling our wholesale product to other MSOs in the state. So that's where we didn't get the revenue because of a few different reasons. Remember, we brought on a grow room. So we were running a little tight because our business is growing, right? We're selling more units in our own stores. So we brought on that new grow room. It doesn't get harvested until. I think it just got harvested. So -- but it's another 30 days until it gets to the store. So our supply position has improved in the third quarter based upon the expansion we did. So that's number one. So you would expect to have more availability and that's one thing we commented on. Second, there was a metric conversion where the state forced a terrible deadline on all of us. And it was really disruptive to our administrative staff. And so a lot of people stopped purchasing because they didn't have to enter into metric for a couple of weeks around quarter end. And typically, you do well around quarter end. There's a lot of -- it's usually a busy period for the wholesale. So June was slower than we would have anticipated for sure. And we did see a big order come in, in July where they got short on our product and they got the conversion done and I guess they could take our product. So you are seeing the follow-through.
Andrew Semple: Great. Good to hear. And then finally, just going back to some of the capital projects you're doing on the cultivation facilities in PA and Virginia. Is there a CapEx budget that is associated with those projects or that you're able to share publicly? Or has that not been disclosed?
James Anthony Cacioppo: Well, it's included in the numbers Michelle has outlined when she gave the total year. But I would point out that they're all -- for increasing grow space, they're all capital light on a relative scale because they all were so far existing grow rooms, right? We're not -- we haven't done a greenfield expansion, which is what we've talked about, which we talked about in Pennsylvania, Stage 3 would be greenfield, right? And that's contingent upon adult use because the capital commitment is going to be higher. Then the Virginia, there'll be 8 grow rooms in total. We brought the fifth on in the second quarter. No, we brought -- there'll be 8 in total. We brought the sixth on, excuse me, in the second quarter. The seventh is under construction will be done. That was in the warehouse and a good space, a previous grow room from what I understand. And then the eighth one is more of a greenfield. It's in the warehouse, but it hasn't been -- it's just empty space. So it hasn't been constructed. So that's a little bit more capital heavy. So right now, we're in the lighter capital phase of the project. Some of the equipment gets leased out to -- we buy equipment on lease. So we think if you look at that and the kind of returns we get, it's a very, very high ROI and capital light for grow investment.
Andrew Semple: Maybe a quick one, if I may. Just maybe how are you feeling about the cash balance as we kind of close out the year now. We've had a bit of an ERTC tailwind behind Jushi for the past few quarters. And you are doing -- even if it's capital-light and capital efficient. There is a little bit higher CapEx than you did maybe in the past few years. How are you feeling about the cash balance to close out the year?
James Anthony Cacioppo: Yes, yes. So I'm very proud of the team from where we stand right now with the $25 million plus that we disclosed at the end of the quarter, sort of at that level. And that was a combination of selling the asset and the ERTC. You're right. There was a bit more extraordinary cash inflows. But the asset sale in Las Vegas is what I'm talking about. So -- but we've been on a pretty aggressive expansion, which we've disclosed the CapEx. And so a lot of people, I remember reading some reports, well, Jushi blow out their balance sheet. Our debt hasn't increased. We had a bunch of warrants expire from an old second lien deal. So I think if you look at our share count, we're below our peak fully diluted shares outstanding. So in this whole horrible environment we've been in since 2021, I think it was the last time we had access to the capital markets. If I remember correctly, it was February of '21 to the equity markets, excuse me. Our share count is actually down on a fully diluted basis. So that's a good thing. And then in terms of the debt, we added a little bit of second lien in the late first quarter, early second, whatever it was, quarter and that was it. And so I think we've done a good job. But clearly, I was talking to Pablo about. We went from 10 stores, 14 stores and we're slowing it down to 10 or 11. And we're doing these lighter CapEx and growth that have a high return. We're clearly saying, okay. Now, we want the returns to flow in and we have a refi coming up. And so we dialed it down a little bit. And we had a cash used this quarter from operations, but we would hope knock on wood. We'll see the last number to come in when we close the quarter. But so we'll see when this -- what we would hope that operating cash flow before uses would go back to what we saw last year, which where we did 4 to 5, 6 a quarter and that sort of does a lot for us. So I think we've accomplished a lot. We've grown the business. And we've taken a confident somewhat aggressive stance in doing that. And by the way, I think the Pennsylvania bill bicameral, which means you have a bill in the House and the Senate. Bipartisan, meaning you have bipartisan support in the House and the Senate for these bills, right, which is why we think the governor needs to do it. What's in the bill? There's 2 bills in the House, very similar. But the one that matches that, the Senate bill, it's a 90-day start. That's going to be a huge kick to our cash flow if they pass it, and let's say, I'm making a number up just to make the math easy. If it's October 1, they pass it, November -- that means you have October, November, December, it starts January 1. So that's a huge uptick in our cash flows, I would imagine, right? I mean it's pretty common sense. You guys know how to run those kind of numbers. You see what these states do when they flip. And so this is kind of what we're thinking. And listen, the organization has done a great job growing the business and the cash balance hung in there. So I'm very satisfied.
Operator: [Operator Instructions] We have no further questions at this time. You may proceed with any closing remarks.
James Anthony Cacioppo: Yes. So thanks for being on the call. We appreciate your time. Proud of the finance team for being the first one to report. That's fantastic, the first MSO to report and really excited about the overall team and thankful for how hard and how efficient everybody is working at Jushi. Thank you.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.