Jushi Holdings Inc. (JUSHF) Earnings Call Transcript & Summary

Good morning. My name is Donna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Jushi Holdings First Quarter 2020 Earnings Conference Call. Today's call is being recorded. I will now turn the call over to Michael Perlman, Executive Vice President of Investor Relations and Treasury. Thank you, sir. You may begin.

Good morning. Thank you for joining us today for Jushi Holdings, Inc. First Quarter 2020 Earnings Conference Call. Joining me on today's call are Jim Cacioppo, Founder, Chairman and Chief Executive Officer; and Kimberly Bambach, Executive Vice President and Chief Financial Officer. This morning, we issued a press release announcing our financial results for the first quarter ended March 31, 2020. The press release along with unaudited financial statements are available on our website under the Investor Relations section and filed on SEDAR. Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements, which, by their nature, involve estimates, projections, goals, forecasts and assumptions that may be based on anticipated operations, acquisitions and/or market conditions that are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements on certain material factors or assumptions that were applied in drawing a conclusion or making a forecast in such statements. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. Additional information about the material factors and assumptions forming the basis of the forward-looking statements and risk factors can be found in the company's management discussion and analysis filed on SEDAR. With that, I would like to turn the call over to Jim Cacioppo, Founder, Chairman and CEO.

Thank you, Michael, and thank you, everyone, for joining our call today. I hope everyone is doing well and staying healthy during this time. This morning, I would like to take a few minutes to review the progress we have made since our last call as well as provide a broader update on our operational footprint. I'll then turn it over to Kim to review our financials. Then we'll open it up to questions. In terms of our progress, simply put, it has been a very productive first half of the year. We are pleased to report revenue of $8.6 million in the first quarter of 2020 and pre-announced record revenue of $15 million in the second quarter of 2020. The strength of the first half of 2020 was primarily driven by strong sales at BEYOND/HELLO stores in Pennsylvania and the acquisition of 2 Illinois medical dispensaries, both of which have subsequently begun serving adult-use customers. We have also recently begun implementing several cost reduction initiatives across our network of retail stores, with a focus on strengthening our financial rigor and driving long-term profitability. Broadly speaking, these initiatives include the implementation of strategic purchasing practices, optimizing our labor model, improving our in-store product mix, creating additional targeted promotions and further leveraging our Beyond-Hello.com online platform. While the impact of these changes is not significantly reflected in our Q1 results, we expect these changes to become more evident in the second half of the year. Speaking of Beyond-Hello.com, in April, we very successfully relaunched our online platform in the second quarter, which now features a vastly improved customer experience, real-time access to store inventory and, importantly, online reservation. Online preorders in a short period of time make up approximately 2/3 of our retail sales, which drives increased revenues, increased operating efficiencies and, therefore, reduced costs and improved customer safety by reducing in-store person-to-person contact. The traffic on the Beyond-Hello.com website has vastly outperformed our internal expectations. I would encourage all of our listeners, patients and customers to check out the website and let us know your feedback. We truly appreciate it. Given the ongoing COVID-19 pandemic, the timing of this launch could not have fallen at a more appropriate time. On that front, we have implemented several initiatives to prioritize health and safety of our employees, medical patients and customers across our network of dispensaries. These initiatives include reducing the number of point-of-sale registers in use at one time, restricting the number of people permitted in store, limiting store hours to those most susceptible and offering curbside pickup. Despite the challenges posted by this pandemic, we continue to perform very well, and I'm very pleased with how our entire team has come together to ensure our patients and customers have access to the medicine and products they need. Now let's look more closely at our operations in the 6 states where we currently are active. In Pennsylvania, we operated a total of 6 medical dispensaries under the BEYOND/HELLO brand in the first quarter. We've recently expanded our footprint with the opening of our seventh store in Ardmore in June, and we expect to open our eighth location in Reading, Pennsylvania later this month. As previously announced, we temporarily closed 2 of our stores in Philadelphia due to the damage sustained during demonstrations in late May. We expect to reopen both locations by the end of July. We also hope to open 3 additional PA stores in 2020 and the 5 remaining stores in Pennsylvania in 2021. Organic same-store revenue growth in Pennsylvania was approximately 96% from January to June, excluding the 2 closed Philadelphia stores. The improved performance was due to improved management and the relaunch of our Beyond-Hello.com website. In the second quarter, we hired a new Head of Retail Operations in Pennsylvania with very significant retail experience in the Pennsylvania retail market. In June, we signed a definitive agreement to acquire 100% of the equity of the grower-processor in Pennsylvania. The permittee operates a 90,000 square foot facility with approximately 45,000 square foot of high-quality, indoor cultivation when construction is complete. We will also have an assignable purchase option to acquire 100% of the equity of a medical marijuana dispensary permittee that currently operates 2 dispensaries in Scranton and Bethlehem, with the right to operate one additional dispensary in the region, subject to all necessary regulatory approvals. Also, in June, we closed the acquisition of Agape Total Health Care, who will open 3 retail locations in Pennsylvania, including the aforementioned location in Reading. With the closing of this deal and the prior announced acquisitions, we will have the right to operate up to 15 dispensaries in Pennsylvania. There have been several adult-use proposals floating around Harrisburg recently. We are hopeful that adult-use will get some traction in the remainder of 2020. We believe Jushi offers the most concentrated investment play on the Pennsylvania market of any public company. In regards to Illinois, Jushi in the first quarter acquired 100% of 2 Illinois medical cannabis dispensaries located in Sauget, adjacent to East St. Louis; and Normal, the Bloomington-Normal metro area. Since acquiring the 2 dispensaries, both locations have been rebranded to BEYOND/HELLO and have begun adult-use sales. The Sauget dispensary began adult-use use sales in March of 2020, and the Normal dispensary began adult-use sales in May 2020. Each dispensary is able to seek approval from the IDFPR to open a second retail location, and we expect to exercise both of these options and have 4 adult-use stores operating by the end of 2020. We hope to open the second Sauget store in the early part of the fourth quarter 2020 and the Bloomington store in the late fourth quarter of 2020. We believe both of these stores have the ability to be our best-performing stores in our national retail network due to their superior locations. The 2 existing stores in Illinois have experienced an approximate 440% increase in monthly same-store sales from their acquisition through June 30. This strong performance in the face of limitations due to COVID-19 has to do with a combination of factors that include the move to adult-use sales, the introduction of Beyond-Hello.com, improved procurement, additional store hours and a better customer experience. Additionally, in the second quarter, we hired a new Director of Operations with experience at Walmart to run the Illinois store network. We also have several initiatives to vertically integrate our Illinois operations, including an application for a grower-processor license. Moving on to Virginia. In September 2019, we acquired the majority membership interest in Dalitso, a Virginia-based pharmaceutical processor for medical cannabis extract. The permit holder is one of 5 applicants who have received the additional approval for a pharmaceutical processor permit issued by the Virginia Board of Pharmacy. The designated area for the permit holder to operate is Health Service Area II in Northern Virginia. With the enactment of Senate Bill 976 in April of 2020, we anticipate adding up to 5 additional cannabis dispensing facilities to our operations in Virginia to bring the total to 6 dispensaries with the added capability for home deliveries. These 6 cannabis dispensing facilities will be in addition to the pharmaceutical processing facility near the City of Manassas, which will also allow us to cultivate, process and deliver medical cannabis to registered patients in Virginia. Senate Bill 976 will also remove the statutory 5% cap on concentration of THC within a cannabis formulation and expands the definition of products a patient can possess. We expect our pharmaceutical processor facility to become operational by the end of the summer and begin dispensing products by the end of the year. We believe the legislative changes have significantly improved the ability for us to serve the Virginian patient population, and we're very excited about these changes. As a reminder, through Dalitso, Jushi has the exclusive rights to serve the Virginia patient population in Northern Virginia, which has the top 4 MSAs in the state on a per capita income basis. Although Jushi was known as a retail first acquirer in 2018 and 2019, with our acquisition in Pennsylvania and our operations in Virginia, we will be vertically integrated in 2 of our top 3 states. In Pennsylvania, we have proven our thesis that it's easier to vertically integrate through acquisition of a licensed upstream into grower-processors rather than downstream into retail. We have seen very few retail transactions in Pennsylvania and quite a few grower-processor deals in Pennsylvania in the past year. In California, through one of our subsidiaries, we anticipate owning and operating a store in Santa Barbara in the late summer, subject to the closing of a related acquisition agreement. We also received approval to move forward in the merit-based application process as one of the 3 selected applicants for a storefront retail and ancillary delivery permit in Culver City, California. Given the increase in Canada tax rates in 2020 and the corresponding resurgence of the unregulated market in California, we have slowed our growth strategy in the state. However, we remain well positioned to take advantage of some of the distressed sellers in California should prices meet our expectations. We continue to operate a grower-processor in Nevada, which has been adversely impacted by the effects of COVID-19 in the first half of this year and are in the process of building out our operations in Ohio. Nevada has been the worst-performing cannabis market due to the adverse effect of COVID on the tourism-dominated market. On a positive note, dispensaries in Nevada begun to reopen and should result in improved demand and an increase in wholesale prices beginning in the third quarter. Additionally, Jushi has turned around its operations in Nevada. We operated close to breakeven profitability this June through improved operations even in the difficult COVID-related operating conditions. We expect further operating improvements and improved product prices to turn this into a profitable market for Jushi in the second half of 2020. In addition, we are working on expansion opportunities in the existing real estate and license footprint with a self-financed project. We believe the footprint we have established in both Nevada and Ohio will give us competitive advantage as the cannabis industry and regulation continues to progress, and we will look to vertically integrate in both states, especially in this lower asset price environment. Before we discuss our outlook, I will now ask Kim to review our first quarter performance. Kim?

Thanks, Jim, and good morning, everyone. Before starting, as a reminder, the results we'll be going over today can be found in our financial statements and MD&A and are all in U.S. dollars. Revenue for the first quarter of 2020 was $8.6 million compared to $6 million in the fourth quarter of 2019. As mentioned earlier, the increase in revenue was driven by the acquisition of 2 Illinois medical dispensaries, one of which began serving adult-use customers in March as well as strong revenue growth at the company's BEYOND/HELLO stores in Pennsylvania, which we have continued to see into the second quarter. Gross profit for the quarter was $4.2 million, resulting in a gross margin of 48%, a $1.5 million increase in gross profit and a 400 basis point increase in gross margin when compared to the fourth quarter of 2019. The increase over the prior quarter was primarily due to higher-margin adult-use sales, improved product mix, the implementation of strategic purchasing practices and more disciplined promotional offers. Net loss for the quarter was $15.9 million or $0.17 per share compared to net loss of $17.1 million or $0.18 per share in the fourth quarter of 2019. Contributing to net loss was an $8.2 million unrealized loss in investments due to market volatility, primarily from a reduction in the value of the Cresco shares and warrants we received in the sale of our minority ownership interest in GSC, the parent company of Valley Agriceuticals, an owner-operator of one of the 10 New York medical cannabis licenses. Approximately $3.1 million of the investment loss as of March 31, 2020, was recovered in the second quarter due to primarily a higher Cresco share price as of June 30. Additionally, since March 31, the company has reduced its Cresco share ownership from 1.4 million shares to approximately 700,000 shares. Adjusted EBITDA loss for the first quarter of 2020 was $6 million compared to $7.3 million in the fourth quarter of 2019. Adjusted EBITDA has improved steadily during the quarter through the combination of higher gross margins and improved store revenue performance. We define adjusted EBITDA, a non-IFRS measure, as EBITDA before fair value adjustments on biological assets and the fair value adjustments on the sale of inventory, share-based compensation expense, fair value changes in derivative warrants, net gain on business combinations, gain and loss on investments and financial assets as well as pre-acquisition expenses. Turning to the balance sheet. As of the end of the first quarter, the company had cash and cash equivalents of $35.7 million and investments in securities of $13.6 million. Total current assets of $56.8 million and current liabilities of $27.7 million resulted in net working capital of $29.1 million at the end of March 2020. As of June 30, the company had $38.4 million in cash and cash equivalents and $12.3 million in short-term investments. I would like to turn the call back over to Jim to discuss our outlook.

Thank you, Kim. We're extremely pleased with the revenue growth we have achieved to date and are very encouraged by our second quarter revenue results and our growth expectations for 2020 and 2021. We expect to continue to deliver industry-leading revenue growth in the quarters to come as demonstrated by our 43% growth in the first quarter as compared to the fourth quarter of 2019, and our 74% growth in the second quarter as compared to the first quarter of 2020. On an annualized basis, our June 2020 revenue run rate is approximately $69 million. As previously mentioned, we temporarily closed 2 stores in Philadelphia due to the damage sustained during the demonstrations in late May. Had the 2 stores in Philadelphia been opened in June, we estimate that Q2 2020 total revenue would have been approximately $16 million, an increase of over 80% as compared to the prior quarter and would have resulted in the June annualized run rate of approximately $78 million, a 56% sequential increase from the March run rate of $50 million. Most of this increase was achieved through organic same-store sales as we only opened up 1 new store in the quarter, which was opened in the middle of June. Our strategy remains focused on building out our high-quality footprint and pursuing attractive acquisition opportunities in our existing markets. Our corporate overhead is substantially built out and any further acquisition and organic growth will not add significantly to our overhead, thereby creating a platform that we can very accretively bolt on new revenues and profits. This will make future acquisition deals very cash flow accretive to shareholders. While there continues to be great uncertainty in the overall market, we believe our strong balance sheet and disciplined approach to capital deployment positions Jushi to continue to both organically grow in current markets and pursue acquisition opportunities across the supply chain in existing states that we currently operate in. With respect to our outlook on a pro forma basis, including the impact of the recently announced acquisition of a Pennsylvania grower-processor, we expect fourth quarter 2020 revenue of approximately $25 million to $30 million and adjusted EBITDA to be positive in the fourth quarter. We are also reaffirming our 2021 revenue guidance of $200 million to $250 million, and we'll provide more detail at the expected close of the recently announced acquisition. Thank you, again, for your time. Operator, please open the call for questions.

[Operator Instructions] Our first question today is coming from Graeme Kreindler of Eight Capital.

First question I had was with respect to the adjusted gross margin, which was in the high 40s this quarter. I was just wondering, in terms of the impact of bringing in the grower-processing license in Pennsylvania, what is that expected to do for the adjusted gross margin as you get vertically integrated in that market? And what would the timing be in terms of the directional expectations? How fast or how slow might those come on?

Yes. So the gross margin should increase as we bring on the grower-processor in Pennsylvania and also become a vertically integrated company in Virginia over time in 2021, in particular. And in terms of the timing of the impact of the acquisition, the facility that we're buying was recently expanded and so that has to be brought into a different growing technique. So typically, for us to turn around a grow to what we like to do in Jushi takes about 9 months. So you'll see a step increase over a 9-month period to where we're getting the kind of yields and the quality and testing that results from that sort of over that 9-month period.

Okay. And moving on, just with respect to the retail openings that you outlined on the call and on the press release this morning, I was just wondering a couple of things. Is the real estate secured for all those openings in Pennsylvania, Illinois, California? And when you think about possible risks to meeting those time lines, whether it's by the end of the year, by the end of the next year, given where we are today in terms of the operating environment and perhaps having a bit more clarity on how things look or how things are opening back up, what do you see as being the biggest risk factors there in terms of meeting those time lines there? Or how would you characterize those?

Thank you, Graeme. So on the real estate, it is secured in many of the locations, not in all the locations, although -- through 2021, which gets really the whole footprint opened up more or less. So there are some stores that we'll be opening up in 2021 where we haven't secured the location yet. On the other hand, for the ones in 2020 and early '21, we have secured the locations. And it's really not a problem. It's more of a negotiation. In terms of the timing, and I think what you're getting at is the delayed potential of this industry, I think we've all learned that in a highly regulated business, especially in the strange environment we've been operating with COVID and demonstrations and riots, that there's some unpredictable things out there that occur. And I do believe that there can be small delays related to opening stores. I don't think they're super meaningful in terms of the value of the company. So in other words, if a store opens, we like to point to the run rate at the end of the quarter as to where we're going. If a store -- for example, this Normal-Bloomington store is supposed to open late in the fourth quarter. If that happens, our run rate at the end of December is going to be extremely, I think, nice. If that gets pushed into January, well, it doesn't really affect value very much because it's only one month, but it just doesn't make that quarter-over-quarter comparison look as good. So I would say that store being -- relying on store openings, there's probably a month or 2 either way that could happen, and typically, it's against you in terms of delay. But we have a pretty firm handle, particularly on the 2 stores in Illinois. We're working with the local authorities, and we have some experience there with the IFPDR. In Pennsylvania, we've opened up 7 stores already. We have a pretty good handle on that as well from a regulatory standpoint. I think the part where we are most concerned is just the performance of the general contractors. Anybody on the call who's done a construction project always understands that they get overburden at times with work and mistakes happen, where you find something, you find a gas line that wasn't on the plan, and now you have to go back to the regulators. So things happen during the construction project, which are unforeseen, and the general contractors can cause some delays. So I would say that's the big risk factor in the projections.

Okay. I appreciate that. Then finally, I wanted to ask about -- just dig into some of the assumptions with respect to the outlook for 2021. First, I wanted to confirm whether that accounts for any sort of changes in the regulatory environment in Virginia as it looks like there's a couple of bills floating around right now that could open things up a bit more. And with respect to the contributions from the various states, would you be able to share what the hierarchy is, what you're forecasting internally in terms of the largest contributors there?

Yes. And so in 2021, in terms of Virginia, we are working with implementation of the current program that has been legislated. It hasn't been implemented yet, it's just the process of the Board of Pharmacy sort of implementing what has been legislated, meeting 6 stores, no THC cap, that happened in April of 2020. So we are working with that program. There is some uncertainty in that in terms of the timing of them allowing you to open the stores and those kinds of things, but we're working through that. This is what we do. We work with cannabis regulators throughout the country. So in terms of -- the big thing that could happen in Virginia that the industry is working towards is to allow flower sales in Virginia. And of course, it could go adult-use. And I think, typically, we would think that the flower would come first and then you would work on adult-use after that as a market. But that's, I would imagine, pretty far off of Virginia. And so our projections don't account for either of those. In terms of -- that was the upside. In terms of -- in Pennsylvania, on the legislative front, in particular, there, there's more of a discussion and a back-and-forth in Harrisburg, which is the capital, about adult-use. I'm not sure you're aware, but in New Jersey, there's a vote, and New Jersey and Pennsylvania share a very, very long border. And the vote is in November when we have our federal elections, and only 50 point -- 50 plus 1 votes need to happen in favor of adult-use, and New Jersey will turn to adult-use state. We believe that causes a lot of change, including in New York, in Pennsylvania, the 2 big neighboring states and then ultimately, Connecticut as well, which borders New York. And so we do believe with the COVID-19 expenses and economic stress that has caused on state's budgets that people are more actively looking at tax sources, which include cannabis taxes. So we believe the activity in Harrisburg has picked up and -- but that upside is not in our projections for 2021, or in our model for 2022, for that matter. It's just something that will be a very, very big impact on our numbers when it happens.

Okay. And just to follow up on the second part of the question, would it be possible to share the hierarchy of contributions for states of that range in 2021 that you are projecting internally?

Yes. Sure. I don't have the numbers in front of me, but I do know what they'll look like. So you would have -- Pennsylvania and Illinois would be 1 and 2. And with the grower-processor in Pennsylvania, I would believe, it would be #1; and Illinois, these are 4 stores that really punch way above their weight because of where they are and the lack of competition in the area and so the stores do tremendously. So I think Illinois would be #2, and then Virginia would be the third. And those are really the 3 big states. When you then fall below that, Nevada is a very distant -- and California very distant, on the fourth and fifth in our ranking.

Okay. That's very helpful. Then my last question here is, there is a bit of a discussion about some cost improvements at retail that you're going through right now. So I was just wondering, is it possible to quantify exactly what the impacts of those cost improvements are? And are those going to show up more so on the fixed cost side or on the variable cost side?

Yes. So we believe they're going to show up on both fixed and variable. So the variable would be particularly your procurement. So we are improving our procurement, and we're also improving our pricing, understanding which products sell and so maybe you should charge more and which products are slow-moving to charge less and try to move them. So there will be some pickup, I think, in gross margins as we better manage our procurement and pricing strategy. On the more fixed side at the store level, there is a fixed and variable at the store level because you shift hours around depending upon stores of operations. So yes, we do -- really do understand about what we've done, and we've taken out -- we haven't put it in the press releases because these aren't numbers that -- but it's around 40% cost reduction in Pennsylvania at the dispensary level in labor costs. And this is -- we didn't acquire that business until the third quarter of 2019. And it took us a bit to get some stores open. We -- I think when we acquired it, there were only 2 stores open. We've opened 5 more and then in the process have figured out how to better optimize the stores and gotten our grips around it. And so that cost reduction, the thought process started in the fourth quarter, and we implemented some of it in the first quarter. And then -- so you don't have a full quarter of it, first quarter, at all. And then the second quarter, you're seeing some more and then you see even more of it in the second half of the year because we keep implementing more and more as we optimize the process of the business. So we really feel like we have a firm grip on it now. And like I mentioned in the press release, we hired 2 very senior retail executives, one to run Pennsylvania, who lives in Pennsylvania, has operated in the Pennsylvania market, multi-stores in retail, and the other in the Illinois area, who's managed retail in that area for many years, including Walmart. So we feel like we're kind of -- we still have more to go in sort of optimizing cost and flow through the store and things like that. And things that increase margins at the store level would be these online ordering. For example, when they preorder -- the end of June, we had about 68% of our sales come in from a preorder online. And that means when the customer or the patient comes in, they just come in to pick it up. Well, that's a lot less burdensome sale because they spend less time in your store because they get less human interaction. That's good from a COVID-19 perspective, and that's also good from a cost perspective because they're coming in and coming out very quickly, and you make the same on the revenue. So -- and we're still optimizing that as well and then sort of changing the flow at the store to really accommodate more what we call express pickup, and that's at the higher-margin sales at the store-level EBITDA margin.

Our next question is coming from Russell Stanley of Beacon Securities.

I guess my first 2 relate to Pennsylvania. Just wondering what your guidance assumes. I think you mentioned having last 5 dispensaries opened in 2021. Are those all expected to be open in H1? And I guess a follow-up with respect to the grower-processor you're acquiring. When do you expect construction to be complete there?

The grower-processor acquisition in terms of when we close the deal around when we close the deal, plus or minus, that construction will have been completed, more or less. It could be off by a month or something like that. And so -- but -- then when Jushi takes over, we do an improvement program. We did this to Nevada, where we took it from 25 grams per square foot per year to 66 grams per square foot per year and on its way to, we hope, 75, which is our initial target in these markets. So we have a process of implementing our program of cultivation and growing that allows us to dramatically increase yields. And also, we will improve the quality of the flower. We also have a very experienced team on the extraction side, which will come in and create a whole new array of extracted products. So that program, which is not construction-related, but does have impact on the footprint, where you're moving things around and adding a little bit of capital in as well, that program takes 9 months. So the building itself will be virtually complete, we inherit it and then over the next 9 months, we'll do some really great improvement to drive up yields and associated revenue. In terms of your first question, which was the opening the store base, the 5 in 2021, you should talk more to Michael Perlman, Investor Relations. But I -- as a CEO, I'll tell you this. I -- when you're opening stores, where you're still working on the real estate identifying sites, the process could take longer than you think because the -- as you go through that process, you reject certain sites because there's a school too close by, there's a church too close by or the town doesn't want it or whatever it might be, competitor shows up and you decide, let's find something that's a little bit better for us. So there are a couple of stores that are still in that zone. So I think I'm more comfortable thinking it's going -- those 5 stores will come throughout the year, and there might be 1 or 2 that are lagging. But we have a pretty firm handle on what we're doing in each store, but on some of them, we're still kind of trying to find the optimal location.

Excellent. That's great color. Just one more question for me. In Illinois, you mentioned efforts towards vertical integration there. I'm just wondering, has product supply from third parties, has that improved at all over the last few months? Or is this market still as tight as it was 3 to 6 months ago?

No. I would say, from a Jushi perspective, it's hard for me to comment on the whole market. It's a big market. But from a Jushi perspective, it has improved. And I'm not sure if everybody is seeing that, but it has improved. I would note that there's a lot of supply coming on in the second -- the third and fourth quarters. Cresco has a large project that they're opening up in the third quarter that I think people are aware of, and some other large companies are expanding. So yes, we have seen an improvement. We have one of the stronger balance sheets in the industry. We're able to use that balance sheet to create favorable terms of payments for the processor -- grower processors. And the other aspect is we tend to be easy to work with. We're professionals. Some of us have worked on Wall Street. We're people of our word and so we're easy to deal with. And we're business people. So compared to a mom-and-pop cannabis entrepreneur, we tend to be quite professional, easy to deal with and pay our bills on time or even ahead of time in certain cases. So that helps us. And so part of the increase in sales in Illinois, which, as you've seen, for us is quite tremendous, the numbers, it is us running the stores better. When we inherited them, these were medical stores. And when you were adult-use, it was just crazy how much of the volume increases. So just getting a grip on that, and also, the procurement were the 2 big factors in driving such a large increase in same-store sales. In terms of vertically integrating that market, we do have an application pending. It was a grower-processor application period. I think it was in May you had to get them in by. Initially, you were going to hear in July, but we knew that wouldn't happen once COVID hit because the department was so busy with the health needs of their population. So they pushed that back, and I forgot when they pushed it back to. There's also several grower-processors that, quite frankly, aren't doing a very good job with their yields and quality flower and extracted products, and they seemed like they could use somebody like ourselves to help them figure out how to do this. So there are several of those that we talk to. There's nothing closed or pending. The first big one for us is Pennsylvania. We have our hands full with that. We're going to turn that around and make that work. We have this application pending. An application is a much less expensive process than an acquisition. So we want to see what happens there. So we -- there's strategy to get vertically integrated in that market. I think it will happen, but the good news with Jushi is we have 2 markets that we're opening up grower-processors with Virginia and Pennsylvania, roughly at the same time. The acquisition closes, we think, in -- by August 1, and then our plant in Virginia opens up on August 1. So as you look at this company rolling forward, we're a very vertically integrated company. The only market, I think, that we're lagging is Illinois.

[Operator Instructions] Our next question is coming from Brian Kadey of Canaccord.

So I just wondered, being that Pennsylvania is a massive catalyst for you guys when it moved from medical to rec, if you could just give us a little more insight as to -- on the political side, what's happening and timing of that event.

Yes. So reading the political situation in any United States government body, including the federal, but across the state level, is very difficult. There's a lot of lobbying that goes on by different folks trying to achieve different things. All of that right now is taking place on the cannabis side in Pennsylvania. So what you're seeing is there's an education process. This is not -- if you look at your average government, state government, Pennsylvania included, this is not a program that they're widely familiar with. I mean they have lots of things that they do. They're very busy people. And so it's really incumbent upon the industry to really educate the government about sort of how this works and how it's worked in other states like Illinois and how we should work together on this. So that process is taking place. There's some industry groups that we're part of. And there's discussions and education going on in the Pennsylvania government. There's discussion of -- right now in Pennsylvania of them trying to do something in the fourth quarter and -- where they create legislation, which could easily get pushed into next year. But at the earliest, you would see something, I think, would be the fourth quarter. But again, that could easily get pushed into next year. As New Jersey goes rec, which I think it will in November, I've just pulled on that, that's great for Pennsylvania because it just creates a drain on their taxes if they don't address it because people cross over the border to purchase in the neighboring states, which is widely talked about by governors. Andrew Cuomo talks about it all the time. He's leading this sort of tristate area to do it sort of simultaneously. And so I think Pennsylvania, although it's not the tristate area, is sort of in that group, and it certainly was in the way they attacked COVID. They did a great job in shutting down shortly after New York and New Jersey did. So I think they sort of operate as a group. And I think 2021, I would be surprised if we don't have some sort of legislation in 2021. Again, the impact on our numbers will be very, very dramatic. People talk about typically tripling the size of our market. Now that doesn't mean each company increases by a factor of 3 because there'll be some additional stores or competition or whatever, but your impact is quite, quite dramatic. We saw it in Illinois, and we feel like we know how to model that.

Yes. Great. And then just in Virginia, I noticed that one of your competitors lost their license. Was that because they didn't have the capital to build out? Or I'm not sure if you can share any info around that. And how does that impact you guys in Virginia?

Yes. So there's 5 zones. Virginia is a very unusual state. It's not well understood. There's only 2 public companies with footprints in Virginia, which we're one of them. So it's not a well-understood state. I think it's a fantastic state. I would -- if you look at Illinois and Pennsylvania, I believe most analysts and investors and companies believe they're 2 of the best states to be in based upon strong regulation and market growth, sensible regulation. And the market has developed in a very systematic way. And Pennsylvania, obviously, is still a medical market, and Illinois just turned in the first quarter of this year to adult-use. So I think those 2 are considered 2 of the best states. I always like to say, I'll put my state -- my third state Virginia against anybody else's third state. I'm just so thrilled about it. But in particular, to answer your question, there's 5 service areas, of which we have Northern Virginia. So we are the sole provider of cannabis to that population. That population is one of the most thriving areas in the whole country. It goes up there with Seattle. The real estate wars in Seattle are very famous, and jurisdictions like that. Amazon put their second headquarters in Northern Virginia, and that's, obviously, a huge testament. They surveyed the whole country in this long 18-month process and chose Northern Virginia, which is in our area. So we have a fantastic MSA. Now the MSA, where the license got taken away, was to the south and west of us, I forgot the service area's number, and that was MedMen. PharmaCann has won it. And as part of their breaking that deal off, MedMen got that license as kind of a break fee. Yes, they did not have the capital. Everybody knows that MedMen is short on capital. They did not have the capital to develop it and, ultimately, they lost it. The government has put on -- most of these municipalities or state governments, what they do is they give you sort of time period to get going, and they want to see progress, and they're willing to give you small extensions if you're making good-faith efforts. And of course, all the other 4, we all have done what we're supposed to have done, and MedMen didn't break ground at all. So it was a tough decision, I think, for the Board of Pharmacy and the government, but that's what they chose. And there's no impact except that the 4 other remaining license holders feel like the patients in that jurisdiction should be able to have access, so we're kind of all lobbying to try and get a store or 2 for ourselves and sort of split it up that way because we could increase our grow size and sort of service that area. So that is kind of how the industry is trying to solve the patient need because the only way for it to be done quickly is by the 4 of us that are in the state already.

Thank you. At this time, I'd like to turn the floor back over to Mr. Cacioppo for closing comments.

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