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

Hi, everyone. Moving along in the presentation here. For those of you staying in this track of U.S. cannabis names. You've heard a lot of great stories today. There's been very, very strong Q2 earnings. So very pleased to introduce the next company here, which is carving out a leading market share and probably what is, in my view, going to be the next Florida when it comes to attractive medical markets. So I'd like to introduce Jushi Holdings here. We have Michael Perlman, Erich Mauff and Todd Green. Apologies, I don't know who's going to be kicking it off. But welcome, guys. Thanks for participating today and looking forward to an update.

Matt, thank you very much. This is Erich Mauff. I am a Co-Founder, Co-President of Jushi. Thank you, everyone, for listening in today. We will be doing about a 15-minute presentation, then open it up to Q&A. And so looking forward to a quick presentation and some interesting questions. So with that, I'm going to ask Todd to please go to the presentation.

Great. Todd, can we go to the first slide.

Great. So just to get a quick overview of Jushi. I think we're a differentiated platform for a couple of reasons. We come from a very analytic background. Distressed is the core of the company. Finance within distressed is a core of what we do as well. And so we have a very analytic, careful, risk-adjusted approach to the market. We identify and acquire assets in really attractive markets, and we'll get to where we have done that over the last 3 years. We focus on those investments, making sure that we not only are operating them correctly and operating them within the statutes and legal environment, but also from a risk management deal structure. We think that's critical in this market. We want to scale in core markets. And we'll talk about the 3 core markets that we're in and what we've done to scale in those particular markets. And we like to optimize our channel. So we want to seamlessly integrate both between the digital world as well as the physical. And so that's really the basic platform on how we build Jushi. Next, to give you a quick high-level glance, we currently are operating 10 stores. 8 of those are in the great state of Pennsylvania, 2 are in Illinois. Those are 2 about 3 core markets. We have the ability to open up to 20 stores. We have 3 large cultivation facilities. We have 1 that will be coming online in Virginia, which is one of our core markets. We have just acquired a large 45,000 square foot indoor cultivation housed in a 90,000 square foot building in Pennsylvania. And then we have cultivation in Nevada. Extraction is in all 3 of those markets, and we are building out in Ohio. Just to go to the strength of our balance sheet and our earnings. We finished Q4 at $6 million, 43% growth to $9 million in the first quarter. We have preannounced earnings, and we'll be announcing earnings later this month. I have $15 million in the second quarter. And so what you can see is a very robust and very dynamic market. We've raised $220 million, $45 million from insiders. So I think that's another real differentiator, and we have over $15 million on cash and cash equivalents. Next slide, please. The way we thought this is very analytic. We have thought through wanting to be in what we call medical markets that we feel have real barriers to entry as well as in some of the high-value adult-use markets. And hence, we think of Virginia as early. None of us are online yet. All 5 of those facilities, of which only 4 are built out, MedMen lost one all their licenses, should be coming online this year. That should be a robust program, I'll come into that a little bit more detail. Ohio, we're building out extraction and processing. We are vertical in Pennsylvania at the maximum allowed 15 stores, 8 operational and a grower processor. We feel very good about Pennsylvania. Illinois, you all know about Illinois, we have 2 operational stores with 2 more coming online in the back half of this year, best market in the U.S., in my view, at the moment. Nevada, we have just a cultivation facility. That was what we call a development market. We are super interested in Nevada now with distress, clearly prominent in that market. And in California, we opened up our first store in Santa Barbara limited market. We like California. It's complex. It's difficult to navigate. No one wants to participate in that. And so we are looking for really distressed opportunities. Next slide. One of the big things that I think when you go on to the Jushi website and look at our BEYOND / HELLO, our ordering page, we have hired an excellent Silicon Valley team. We have a seamless operation between the physical store and the retail online platform. We think that is going to be -- but then COVID was critical and clearly, going forward, it's going to be an incredibly important aspect. Next slide. Just this is going through a big cultivation manufacturing, we're in Scranton, PA just closed on that. As I said, 90,000 square foot, 45,000 square feet of indoor. Manassas in VA. That's a 93,000 ground-up build. We'll be able in Phase I to do 30,000 of that, but clearly can expand that facility very aggressively. And then in Vegas, we have this 10,000 just over high-quality indoor cultivation. Next. Branded products. People often ask us. We are launching our branded product in the next 6 months. That will be our flower brand under a very well-known award-winning flower called The Bank, which comes out of Colorado. The Lab, many people will know The Lab. It was one of the early and best and highest quality extracted products. Nira Plus is our medical line and then we have just Nira for our CBD. So very excited to bring these brands to market with a long story history coming out of Colorado. Next. A little bit more detail on the states that we're in. I think what I'll do is go to the next slide where we'll go into a little bit more detail on these, but this gives you an idea of where we are East, West best medical market and then some of the highest growth adult-use markets that we're in. Next. So Pennsylvania, I think it's really important, and I'll give you guys an overview. So we had 5 licenses on the retail side, allow you to build 15 stores. As I said, 8 operational, we have 5 under development, it's a great state. It's the fifth largest state, almost 13 million people, 150 provisional retail licenses, 24 grower processors, almost 300,000 registered patients, a fantastic market to be. You can see where we've built our stores, has been in the best areas. 9 of the stores are in the Greater Philadelphia region, of which 3 are allowed to be in what they call city center. We have 3 that we will build around Pittsburgh and 3 around the Scranton area. So well diversified, all around the major metropolitan areas, high population. And then of course, we just closed on the Scranton grower processor. We bought that from Vireo. We think that's going to be an excellent deal, massively accretive, vertically integrated into a great market that we think has a very good chance of adult-use legislation in the next 12- to 18-months. Next one. Illinois, I'm not going to spend too long on this, if you don't know that Illinois is a great market yet, just do some research, really robust market. We're one of -- we have 4 of 120 licenses that were given out. We're in a place called Sauget, you just cross from St. Louis. So -- and it's just a great location. And then our blooming to normal stores are in the middle of the state, where all the large college towns are. So a market that we really like, incredible sales growth in those markets. Next, I'm going to spend a bit longer on Virginia, not that many people are aware of Virginia. So Virginia is 8.5 million people. They broke the state into 5, what they call Health Service Areas, you can see where Jushi is. And that just so you know, is across the Potomac from D.C. So things about our Health Service Area that I think are really interesting is, one, 2.5 million of the 8.5 million in the state, it's the highest per capita income. It's got the best and most wealthy neighborhoods. It's also the smallest geographic region. Just how that -- quickly how that program is set up. You can sell wholesale, you can only deliver into your Health Service Area and you're only allowed to put your facilities in your Health Service Area. The state recently changed some of their rules and regulations. We now have the ability to add an additional 5 retail stores on top of the manufacturing, processing and retail facility that we have in Manassas. We think this is a sleeping giant. I mean it's just an absolutely fantastic market, high barriers to entry, and we're in the richest, smallest, most densely populated part of Virginia. So we think or when this comes online, it's going to be an incredibly attractive asset. Next. California, I'm going to be very quick on this. As I said, we have a Santa Barbara store, that's 1 of 3 in Santa Barbara. So Santa Barbara City limited the number of stores, those are markets we like, big barriers to entry. That's going to be a fantastic store opening up in September. We have a Culver City license that we won, and we're in the process of getting that stood up. Again, as I said, California to us is a secondary market looking for our skill set, which is distressed. We think we are uniquely positioned to be able to understand and buy distressed assets. Next one. High level, just to go through these, I allow you to look through this ourselves, but this just shows the sales growth and the cash. One thing I would say about Jushi, we are fully funded, meaning we do not need additional capital to build out everything we have and still have reserve in case not everything works out the way it should, very attractive to be fully funded, have your pipeline fully funded and be able to really attack these markets as we see this explosion in demand. Next. Just to give you the financial performance here, these are to give you some construct. We've come out with our guidance for 2021. But if you look at the June quarter, which is the second bar on the -- or third bar on the left, you'll see we were running at $69 million. You can see the quarter-on-quarter growth rates. We continue to feel very comfortable with our outlook for 2021 as well as 2020, we think we are going to be well within those boundaries if you just continue to see the growth that we will be doing quarter-on-quarter. Next. I think this is an interesting slide. We're not just a buy, buy, buy company. We bought a minority stake, Gloucester Street Capital was one of the 10 licenses in New York. We actually sold that at a very attractive time, got cash on balance sheet. It was a minority investment. We give a lot want to take it up and own the whole asset. We've had a settlement with a prior partner in Illinois that generated the 2 Illinois licenses. For those of you on the phone, those 2 stores each get an additional adult-use store. That's how we get to the 4. And we think we've acquired a grower process in Pennsylvania at what we think is a very, very attractive level, and it's really complementary to the business that we have at the moment. So it's not just a buy, buy machine. We think about stuff. We look at the pros and cons, we think about capital, we think about velocity of capital and we make sure that as a balance sheet, we're always in a positive position and not stretching. Next. The investment highlights for Jushi, for me, attractive long-term financial growth. I personally think that our footprints are in some of the best medical markets that have a shot to become adult-use and in some of the very best adult-use markets. We are highly analytic, highly technical. We do metrics around our business, we are driving our revenue growth as well as EBITDA expansion. We have a solid balance sheet. I would argue one of the best in the industry. We have a disciplined approach to capital. That's our business background. We are risk managers, we know how to allocate capital, and a lot of that capital is our own. So we're all right way risk. And we have a very experienced team. When we started this company, people thought the footprint was more important than management. I think we've proven that management is far more important in footprint. Next. This is the team, and I'm going to stop here and open up for questions. But this is an incredibly talented team. Jim, myself, Jon, are the initial cofounders of the company. We have founded it with Denis Arsenault who is well known to the Canadian audience for starting Organigram. He was the fourth founder. He is not an employee, but he was part of the core team. He gives us tremendous advice and thought on how to grow the business. We have one of the best CFOs in the business. We are really very focused on bringing in the best teams and the best management team. One of my board members once told me when we started this company. He said, remember, it's not the game you play. It's the team you build to play the game. So with that, Matt, I would like to open it up to questions. I'm 15 minutes into the presentation. We have 10 minutes to go.

Yes. Thanks, Erich. That was a very good summary of the operations, very insightful. A number of different avenues we can go down here. I guess the first I wanted to focus and ask a little more questions on Pennsylvania specifically. So the Q2 reporting we've seen so far from, let's call the MSO crop here, has been very strong. And Illinois and Pennsylvania are 2 markets that get good shout-outs with respect to how they're progressing. So first, just knowing from my coverage in the space that Pennsylvania is a fairly supply-constrained market. Does the closing of the cultivation asset from Vireo allow you to expedite more retail openings? Or is that sort of independent of one another?

Good question, Matt. I would answer the following way. We are a very experienced group. We have established great relationships with grower processor in the state. So we've actually been very lucky in the last 6 months to almost have an uninterrupted supply. When you're dealing with a counterparty that pays on time, understands contracts, adheres to contract, you become a very attractive counterparty. But number two, no. Clearly, we want to be integrated. We think having our own product will be a massive strategic advantage. But no, we are building out those stores as quickly as we can. I would say COVID -- the most impact on my business is cleanup in the bottom line. Growth is great. It's getting the stores open, has been a little bit constrained. The State of Pennsylvania is still under a relatively strict lockdown. So we are still undergoing a fair amount of headwinds. But no, we are building those stores as quickly as we can get regulatory approval.

And then maybe just a little more color on how the Pennsylvania market is formulated, let's say, compared to a Florida, which I know a lot of people get -- there's a lot of excitement about based on the numbers that truly put out of that market. So for me, you got kind of 2 markets after Florida that looked like they could be the next contenders, and Pennsylvania is one, probably Arizona is the other. With Pennsylvania, just curious on what -- how easy it is for patients to get access to product? Is there retail that soften that map? It looks like there is in the heart of Philadelphia and in other places in the state, Pittsburgh and your views on where the patient growth trajectory is trending.

Yes. Well, I mean, we're almost 300,000 patients. So it's clearly been -- it's been -- seen significant growth. I'd say, if you compare and contrast it to Florida, I think there's some interesting aspects. One, we've captured 150 retail licenses, 24 GPs. Florida cap them but do not cap retail. And so I think it's still a very closed market. I think we've chosen very carefully where to put our stores. It's a nice mix of urban areas as well as underserved regions, which do incredibly well. We saw that in Illinois. We have these stores in places like Bloomington-Normal, which are not a huge -- it's not Chicago, but they're doing incredibly well because this is their only store. So I think we've thought through that footprint really carefully. And I think the vertical integration will help. But as a company, we continue to see month-on-month growth on our existing franchise.

Great. Great. The other kind of topic I wanted to touch on just in covering the sector for a number of years here, is a shift in what -- at least, what investors have been looking at with respect to this multistate operator model. And we've seen a lot of great success stories, and we've seen a lot of failures, quite frankly, based on capital allocation. So given that you have a fairly strong balance sheet here, how do you view markets like where you only have processing or where you only have a part of the value chain. Is it very critical for you to become fully vertically integrated sooner rather than later? Or are some of these markets more pilot in nature, where you don't know if you want to really double down and putting more money into them?

Yes. So I'd say the existing markets we're in, let's talk about those. So clearly, I can increase the size and the scope of my facility in Virginia if demand is there. I've got stores to open, I still got a lot of building to do in Pennsylvania. And then, of course, in Illinois, I will have 4, full stores open. I'd say those core markets, the focus and it will be a big focus on management is operations, getting things stood up. And then just running these businesses leanly and compliantly and efficiently. I'll tell you the markets we're not in. We like Ohio. Ohio is a natural place where we would look. We're in Pennsylvania. We're in Illinois, why would we not be in Ohio. We understand that market well. Yes, we found the right deal, just like we did with Vireo, we did not wait and scramble to buy a GP and PA for $200 million. We knew that there would come a time when we could find a more attractive entry point. And so I'd say for us, as a company, it's building on what we have and then looking in distressed markets. So one of the skill sets we have is, I am the only MSA to announce a deal, fund the deal and close the deal during COVID. This team knows how to work in distressed situations. We understand that we have the background, we have the legal background, we have the financial background. This is not as -- we're not strangers to these very difficult and complex deals. So that to answer your question, if a really interesting complex deal comes along, we will absolutely look at it, but we're highly disciplined. It's all about cost of entry, the price you pay. We are not going to be chasing dreams. I think this has been what we call a billionaire and bust market. We would prefer not to be billionaires or bust. We're just going to manage this carefully, thoughtfully and risk-adjusted.

Great. Yes. And just the facility that you're referring to in Pennsylvania that was closed during COVID, I actually had been there a year before for this previous owners and a very well-run operation there, probably been all over the U.S. now, so congrats on closing that. We had Colombia Care talking earlier this morning, and that's one of your peers in Virginia. So with MedMen now out of the mix, what happens to that fifth region? And if you can give a little more color on what it's going to take to promote more growth there? Because Virginia is a state that no one ever asks about. But the more you look into it, the more you realize that there's a huge growth profile that's just around the corner here.

Yes. Look, I don't want to speculate on what happens to that rescinded license. It makes no difference to us. We're in the best MSA. We got 2.5 million people. We've got the richest, most densely populated. We're in Fairfax County, Tysons Corner, Amazon 2, world headquarters is going. I really have not looked beyond my own turf. It's just building out large facility. I think the difference between us in Colombia Care is we have almost 100,000 square foot facility. I think they're starting off with maybe 2,000 or 3,000 square feet in cultivation. So we are clearly much more aggressive, as we should be. We're in a better region. I mean, we know that there will be massive demand for the product. We're seeing people are getting their medical cards, let's see how it starts. But we think it's the best market to be in. I mean it's 5 licenses of which only 4 are outstanding. You're domicile do not -- imagine in Florida, you were able to land up in the gate counting. So you had -- you would have bulk all the way down to Miami. That was the only place you could be. No one else could come in. No one else could do anything, you just own that piece of real estate. So I think as a market, I don't think it's a better market to be a GPM, I really don't.

It is an interesting comment. I've spoken to many operators in very different states where they say, one in Arizona, for example, which says, that's great to show that you got 10 stores in Phoenix, but it's more about the barriers to entry. And some of the best producing retail stores are in sort of towns or cities you never really think twice about. But if you're the only player in town and you are fully self-sufficient and vertically integrated, those could be some of the better stores from what I've been told. We have only a few minutes left. So I want to make sure we touched on Illinois a little bit more as well. That's, as you mentioned in your opening remarks, the -- clearly, one of the best, if not the best markets to be in right now. Certainly highest growth. We're starting from a base of 0 in January adult-use. And if you just take July numbers, and you can argue that, who knows if that's appropriate, but if you just take July numbers, it's $1 billion market today. So any sort of barriers that you guys have to open up these retail locations? Are you able to have Chicago on that list? What's the -- in the framework that you guys have for what you're allowed to do?

Yes, we're very simple. We are currently open in a place called Sauget, which is across the river from St. Louis. So we are adult-use, and they are barely standing up a medical program. Second store, we are opening up is right in the heart of Sauget, which is where the night clubs and where everyone comes over from St. Louis late night to have fun. We have opened the second store right there. We are 5 minutes from downtown St. Louis. I don't know, I just think it's a fantastic place to be. We wouldn't want to be anywhere else. And in Bloomington Normal, again, we're going to be one of -- we have 1 of 1, we'll be 1 of 2. It's a massive university town, there's -- the competition is 45 minutes away from us. No, we don't want to go to the major cities. We're not allowed to. We are building where we are, and we think when you start to see the numbers coming out of Illinois, you will realize that sometimes being in these low-cost off-center city markets pays off handsomely.

Great. Just one more question for me, and then I think we're going to get the hook and I appreciate you guys participating. Just looking at where you are now, revenue run rate, $67 million in your most recent month, and I understand you haven't reported in Q2 yet. Just looking at that guided range of $200 million to $225 million, is there any assumptions of more stores opening, more expansion? Is it all organic to what's open today? Just color on how you achieved that?

Yes. I mean we will be having investor day in September, where we'll run people through that in detail. But very clearly, the way we model this up, Pennsylvania remains medical. We open the stores that we have. We get to grow to produce and yield what it should. It's not -- I'm interested to have you down once we run it versus what you saw. And so yes, that's on the existing portfolio. We don't need any miracles to happen. We just need to open our stores, and we just need to do what we're doing, and we will feel very confident about those numbers. And the rest is just pure upside being on Jushi.

Fantastic. So thanks for participating, guys. A lot of exciting stuff. We'll chat again soon. Stay safe and say, hi, to Denis for me. Denis was actually the very first person in the cannabis industry I ever met back in 2016. I forget to see always with the time with you, the first guys to come in the Canaccord office at least that I met with. So say hi for me. And yes, Let's try again soon.

I'll do that. He's been a wonderful resource. I mean, not many people have someone who's done this before with the success that they've done it's as he's part of the founding team to give you guidance in what's a very tricky and new industry.

For sure.

Great . Thank you, everyone.

Take care.

All the best. Bye-bye.